TREASURIES-Yields hit four-month highs on hopes for bigger stimulus package

Karen Brettell
·3 min read

(Adds details on stimulus talks, Fed's beige book, 20-year auction results, updates yields) By Karen Brettell NEW YORK, Oct 21 (Reuters) - Benchmark U.S. Treasury yields rose to four-month highs on Wednesday on hopes that U.S. lawmakers will reach a deal to pass new fiscal stimulus in the near term. U.S. House Speaker Nancy Pelosi said there was still a chance for a deal on fresh COVID-19 relief despite resistance from Senate Republicans, though she acknowledged it might not pass until after the election. “Broadly speaking the rise in yields this week can be attributed to optimism on the stimulus package,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York. “As time goes by it feels more and more likely it’s going to be a bigger package given that the Dems seem to be driving the discussion.” Some investors are betting long-dated yields will rise after the Nov. 3 presidential if Democrats win a majority in the Senate and pass more stimulus than expected from Republicans. But other Democrat policies are also viewed as potentially weighing on the economy. “The market is at an interesting juncture where not only are there differing views about what the most likely outcome is into and through the election, but also differing views on what the market reaction should be for the same outcome,” said Michael de Pass, global head of U.S. Treasury trading at Citadel Securities. “The broadly accepted narrative is that a Democratic sweep is going to be bearish for Treasuries, but now there are people interested in taking the other side of the argument, saying that the likely increase in regulation and taxation could be quite negative for economic growth, particularly if the fiscal stimulus is not as targeted,” de Pass said. Benchmark 10-year note yields rose two basis points on the day at 0.813% after earlier reaching 0.836%, the highest since June 9. The yield curve between two-year and 10-year notes steepened as far as 68 basis points, the widest spread since June 8. The Treasury Department saw solid demand for a $22 billion sale of 20-year bonds on Wednesday. It will also sell $17 billion in five-year Treasury Inflation-Protected Securities (TIPS) on Thursday. The U.S. economy continued to recover at a slight to modest pace through early October as consumers bought homes and increased spending, but the picture varied greatly from sector to sector, the Federal Reserve said on Wednesday. October 21 Wednesday 3:00PM New York / 1900 GMT Price US T BONDS DEC0 173-5/32 -0-11/32 10YR TNotes DEC0 138-148/256 -0-32/25 6 Price Current Net Yield % Change (bps) Three-month bills 0.095 0.0963 -0.005 Six-month bills 0.115 0.1167 0.000 Two-year note 99-244/256 0.1492 0.002 Three-year note 99-202/256 0.196 0.003 Five-year note 99-132/256 0.349 0.006 Seven-year note 98-160/256 0.5774 0.011 10-year note 98-60/256 0.8125 0.016 20-year bond 95-136/256 1.3836 0.020 30-year bond 94-36/256 1.6237 0.021 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 8.00 -0.50 spread U.S. 3-year dollar swap 7.50 -0.50 spread U.S. 5-year dollar swap 7.50 -0.25 spread U.S. 10-year dollar swap 2.50 -0.25 spread U.S. 30-year dollar swap -35.00 0.50 spread (Reporting by Karen Brettell; Editing by Tom Brown)