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TREASURIES-Yields rise, curve steepens as weak jobs report points to more stimulus

Karen Pierog
·4 min read

(New throughout, updates yields; adds comments from Biden, Fed official and analyst) By Karen Pierog CHICAGO, Jan 8 (Reuters) - U.S. Treasury yields on the longer end of a steepening curve rose on Friday after a plunge in payrolls last month raised the prospect of more federal spending to aid the coronavirus-battered economy. The benchmark 10-year yield, which climbed as high as 1.125% for the first time since March, was last up 4.4 basis points at 1.1153% and the yield curve steepened. Nonfarm payrolls decreased by 140,000 jobs last month amid growing COVID-19 cases, marking the first decline since April, the U.S. Labor Department said on Friday. The unemployment rate was at 6.7%. The further jump in yields came as stocks eked out new record highs, highlighting the risk-on sentiment that has sucked money out of bonds in anticipation of yet-higher yields. “The market is going to look at (the report) and say there’s going to be more fiscal stimulus," said Steven Ricchiuto, U.S. chief economist at Mizuho Securities USA LLC in New York. "You’re going to have the 10-year Treasury note push up to higher yields." Longer-term yields have been climbing all week as Democrats won narrow control of the U.S. Senate as a result of Georgia runoff elections, raising expectations that a Democrat-controlled Congress and White House will seek further stimulus spending financed with more Treasury debt. Citing the jobs report, President-elect Joe Biden called for more immediate relief, including direct stimulus checks, saying that taking action now will help the economy even with deficit financing. Tom di Galoma, a managing director at Seaport Global Holdings in New York, said the market was also focused on supply in credit and Treasury markets. "January is supposed to be a fairly decent month for a lot of new issues coming all over the globe and that's going to weigh on Treasury yields and Treasury yields are going to go higher," he said. More Treasury supply is on its way in auctions next week. A record $58 billion of three-year notes will be offered on Monday, followed by $38 billion of 10-year notes on Tuesday and $24 billion of 30-year bonds on Wednesday. Higher yields should bring in buyers, according to Jim Vogel, senior rates strategist at FHN Financial in Memphis, Tennessee. "Unlike other periods where we have sharply higher rates, there's still an awful lot of cash that many investors have been waiting to put into the market based on the idea that 2021 would bring higher yields. Now here they are," he said. The market was also weighing comments this week by U.S. Federal Reserve officials regarding the central bank's bond buying program. Fed Vice Chair Richard Clarida said on Friday that any changes are "well down the road," and that he expects the current pace of bond purchases to remain in place at least through this year. The most watched part of the yield curve, which measures the gap between yields on two- and 10-year Treasury notes , reached its widest level since May 2017 at 98.49 basis points. It was last 3.6 basis points higher at 97.47 basis points. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was last unchanged at 0.1389%. January 8 Friday 2:37PM New York / 2137 GMT Price Current Net Yield % Change (bps) Three-month bills 0.085 0.0862 0.000 Six-month bills 0.09 0.0913 0.000 Two-year note 99-249/256 0.1389 0.000 Three-year note 99-182/256 0.2242 0.013 Five-year note 99-118/256 0.4849 0.031 Seven-year note 98-188/256 0.8121 0.042 10-year note 97-196/256 1.1153 0.044 20-year bond 95-20/256 1.6673 0.033 30-year bond 94-100/256 1.8711 0.026 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.75 1.00 spread U.S. 3-year dollar swap 7.00 0.50 spread U.S. 5-year dollar swap 7.00 0.50 spread U.S. 10-year dollar swap 0.75 1.50 spread U.S. 30-year dollar swap -26.25 1.50 spread (By Karen Pierog, additional reporting by Herbert Lash, Editing by Nick Zieminski and David Gregorio)