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TREASURIES-U.S. yields tumble on virus woes as investors see soft data next week

  • U.S. COVID deaths hit more than 260,000
  • U.S. yield curve flatter for 2nd day
  • Investors mull possible Fed action on asset purchases

NEW YORK, Nov 27 (Reuters) – U.S. Treasury yields dropped on Friday in thin post-holiday trading, weighed down by persistent concerns about the continued surge in coronavirus cases and possibly weaker economic data next week amid renewed lockdowns in several U.S. states and around the world. 

Markets were closed on Thursday for the U.S. Thanksgiving holiday.

The yield curve also flattened for a second straight day, as long-end yields continued to fall, with investors mulling the prospect that the Federal Reserve could extend purchases to longer-dated maturities possibly at this month’s Fed meeting. 

The surging COVID-19 numbers though remained a market focus despite positive news on the vaccine front.

“The Fed minutes on Wednesday were obviously talking about its asset purchase program, potentially doing a number of things,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities in New York. “But certainly if you listen to the Fed…they like the vaccine in the medium term, but short term, they are concerned about COVID. This is certainly enough of a dynamic to peel away the euphoria over the vaccine in the short term,” he added.

U.S. coronavirus deaths were now at more than 260,000, while cases continued to grow, nearing 13 million.

Next week’s heavy slate of U.S. economic data, which includes non-farm payrolls for November, could reinforce expectations of a setback in the U.S. recovery as several states instituted shutdowns to prevent the spread of the virus, analysts said.

In early afternoon trading, U.S. benchmark 10-year yields fell to 0.842%, from 0.878% late on Wednesday. 

U.S. 30-year yields slid to 1.575% from Wednesday’s 1/62%.

On the front end of the curve, U.S. two-year yields dropped to a two-week low of 0.154% and was last at that level from 0.16% on Wednesday.

The yield curve flattened, with the spread between the two-year and 10-year notes narrowing to 68.8 basis points.

Fed policymakers in November discussed how the central bank’s asset purchases could be modified to maximize support for the markets, according to the Fed minutes released on Wednesday. Some participants said they expected the Fed to eventually lengthen the maturity of the bonds purchased.

Some investors already were raising their expectations that the Fed may increase its government bond purchases or adjust the maturity of bonds purchased.

“The Fed  has been very clear that the next step if anything is on asset purchases,” said Amerivet’s Faranello. “Do I think there is a lot of buying in the market to get in front of this potential long-end change that the Fed could make? I think it has been enough to quell the sell-off in rates.” 

November 27 Friday 1:45PM New York/1845 GMT Price Current Net
Yield % Change (bps) Three-month bills 0.0825 0.0839 -0.002 Six-month bills 0.095 0.0964 0.005 Two-year note 99-241/256 0.1544 -0.006 Three-year note 100-40/256 0.197 -0.011 Five-year note 100-8/256 0.3687 -0.020 Seven-year note 100-20/256 0.6136 -0.032 10-year note 100-80/256 0.8422 -0.036 20-year bond 100-48/256 1.3642 -0.043 30-year bond 101-44/256 1.5758 -0.044 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.50 0.00 spread U.S. 3-year dollar swap 9.75 0.75 spread U.S. 5-year dollar swap 6.50 0.00 spread U.S. 10-year dollar swap 0.25 0.25 spread U.S. 30-year dollar swap -32.25 -0.50 spread

(Reporting by Gertrude Chavez-Dreyfuss Editing by Alistair Bell and Chizu Nomiyama)