TREASURIES-Yields end week lower on COVID-19 concerns

  • 8/20/2021
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(Adds quotes, inflation expectations, updates prices) By Karen Brettell NEW YORK, Aug 20 (Reuters) - U.S. Treasury yields edged higher on the day but closed lower on the week on Friday as concerns about the spread of COVID-19 variants and rising volatility in the stock market boosted demand for the safe haven debt. The spread of the coronavirus Delta variant has raised fears that it will slow economic normalization, with many workers likely to continue to work from home. "You"re probably going to see slower growth, economic numbers are going to be somewhat softer over the course of time," said Tom di Galoma, managing director at Seaport Global Holdings in New York. At the same time "stock market volatility has been a lot higher recently and ... the month of August, especially the last couple of weeks, it"s a very strong seasonal for lower yields, so that"s another factor," di Galoma added. Benchmark 10-year yields rose two basis points on the day to 1.260%, but are down from 1.283% last week. They fell to 1.127% earlier this month, which was the lowest since February. Trading was choppy with many traders and investors out for August summer holidays. "Today"s selling in longer Treasuries is on light volume," Jim Vogel, interest rate strategist at FHN Financial, said in a report. Inflation expectations also dropped sharply this week as investors speculated that price pressures should moderate. Breakeven rates on five-year Treasury Inflation-Protected Securities fell to 2.45% and are down from 2.57% last Friday. The Federal Reserve is expected to taper bond purchases later this year, which should dampen some inflation pressures. The U.S. central bank is not likely to begin this process in the next few months, however, and it is likely to reduce the purchases at a slow rate. "I don"t think it"s going to be implemented very quickly and I don"t think that it is going to be a huge reduction in the day to day QE that they"ve been doing. They"ll reduce it, but it"s not going to be substantial," di Galoma said. Dallas Fed President Robert Kaplan, among the U.S. central bank"s most forceful supporters for starting to reduce support for the economy, said on Friday he may need to adjust that view if the Delta variant slows economic growth materially. Minutes from the Fed"s July meeting released on Wednesday showed that the bulk of the U.S. central bank"s policy-setting committee is coalescing around a plan under which the Fed would start trimming its bond-buying program later this year, though policymakers remained somewhat at odds over how quickly to taper the asset purchases. Investors will be watching a speech by Fed Chair Jerome Powell in Jackson Hole next week for any new indications on when the taper will be announced. August 20 Friday 3:08PM New York / 1908 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0525 0.0532 0.000 Six-month bills 0.045 0.0456 0.000 Two-year note 99-206/256 0.2261 0.006 Three-year note 99-202/256 0.4464 0.016 Five-year note 99-58/256 0.785 0.020 Seven-year note 99-160/256 1.0562 0.023 10-year note 99-232/256 1.26 0.018 20-year bond 99-72/256 1.793 -0.003 30-year bond 102-232/256 1.8729 -0.003 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 9.00 -0.25 spread U.S. 3-year dollar swap 10.00 -0.50 spread U.S. 5-year dollar swap 8.25 0.00 spread U.S. 10-year dollar swap 1.25 0.00 spread U.S. 30-year dollar swap -28.00 -0.25 spread (Reporting by Karen Brettell; Editing by Anil D"Silva and Will Dunham) Our Standards: The Thomson Reuters Trust Principles.

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