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TREASURIES-Yields rise on vaccine optimism, after weak 20-year auction

Karen Brettell
·3 min read

(Adds 20-year auction results, comments, updates prices) By Karen Brettell NEW YORK, Nov 18 (Reuters) - U.S. Treasury yields rose on Wednesday on optimism over coronavirus vaccines and after a weak 20-year bond auction dented the appeal of the safe haven debt. Pfizer Inc said that final results from the late-stage trial of its COVID-19 vaccine show it was 95% effective, adding that it had the required two months of safety data and would apply for emergency U.S. authorization within days. The U.S. Treasury Department meanwhile saw soft demand for a $27 billion sale of 20-year bonds, which sent yields to session highs. “The combination of demand for risk … along with supply has been weighing, and then today’s really poor auction added a little bit of pessimism to the outlook,” said Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco. Benchmark 10-year yields rose one basis point to 0.882%. The yields have fallen from an eight-month high of 0.975% last week. The yield curve between two-year and 10-year notes steepened two basis points to 70 basis points. The Treasury will also sell $12 billion in 10-year Treasury Inflation-Protected Securities (TIPS) on Thursday. Investors are balancing the likelihood that a vaccine rollout will return the economy to normal against what could be a lengthy timeline to do so. The U.S. government is also unlikely to launch new fiscal stimulus until at least next year. “We're really in an environment where the market is trading off two distinct narratives. One is we have a vaccine; we'll get back to normal, buy stocks. The other is because cases are increasing rather dramatically, we need more from Congress, so buy bonds," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. The Federal Reserve is expected to increase purchases of long-dated debt either by shifting more of its existing buys further out the curve or increasing the overall amount of its purchase program if yields rise much further from here, which is likely to cap the yields for the short and intermediate-term. “A lot of people are starting to price in the potential the Fed increases QE either through duration or increased purchases, so I think for now that might put a lid on the (10-year) note right around 1%,” said Rupert. November 18 Wednesday 3:00PM New York / 2000 GMT Price US T BONDS DEC0 172-15/32 -0-3/32 10YR TNotes DEC0 138-44/256 -0-32/25 6 Price Current Net Yield % Change (bps) Three-month bills 0.085 0.0862 0.000 Six-month bills 0.09 0.0913 -0.005 Two-year note 99-231/256 0.1753 0.000 Three-year note 100-16/256 0.229 0.003 Five-year note 99-70/256 0.3985 0.012 Seven-year note 99-4/256 0.6451 0.016 10-year note 99-240/256 0.8815 0.010 20-year bond 95-56/256 1.4031 0.006 30-year bond 100-28/256 1.6204 -0.005 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.00 -0.25 spread U.S. 3-year dollar swap 7.25 -0.25 spread U.S. 5-year dollar swap 6.00 0.00 spread U.S. 10-year dollar swap -0.50 0.00 spread U.S. 30-year dollar swap -32.25 1.00 spread (Editing by Marguerita Choy)