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TREASURIES-U.S. long-dated yields rise to four-month highs ahead of supply

Tue, 6th Oct 2020 16:00

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 6 (Reuters) - U.S. long-dated Treasury yields
climbed to four-month peaks on Tuesday, as investors sold
government debt ahead of heavy supply this week and focused on
prospects for the passage of new coronavirus U.S. stimulus
package.

The U.S. Treasury will see $110 billion in notes and bonds,
launching a $52 billion auction of three-year notes later on
Tuesday.

U.S. 10-year, 20-year, and 30-year yields rose to their
highest level since June.

Ahead of Treasury supply, the yield curve steepened again,
with the spread of two-year and 10 year hitting its widest since
June. The gap between the five-year and 30-year was 127 basis
points, the widest since early June as well.

"Generally to intermediate record auction sizes, the actual
flow of bringing supply to market can cheapen bonds by a couple
of basis points," said Jon Hill, senior rates strategist, at BMO
Capital in New York.

"In order to absorb tens of billions of dollars in auction
supply, it has to become attractive for investors. Because the
dealer community still has a heavy balance sheet, they may not
bid as aggressively for these bonds," he added.

Investors also looked to news about the stimulus package.
House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin
spoke by phone on Monday about fresh relief measures and were
preparing to talk again on Tuesday.

Overall though, analysts said the stimulus plan will get
done if not before the election, then certainly after.

In morning trading, U.S. 10-year yields to
0.781%, from 0.762% late on Monday, after earlier rising to
0.792%, the highest level since June.

Yields on U.S. 30-year bonds were at 1.596%, up
from 1.567% on Monday. Earlier, 30-year yields climbed to a
four-month peak of 1.607%.

The yield curve steepened on Monday as well, with the spread
between the 10-year and two-year widening to as much as 64.5
basis points, the widest spread since June.

The steeper curve continued to price in a Joe Biden victory
in the Nov. 3rd presidential election, analysts said. A victory
for Biden and a Democrat sweep in Congress mean higher fiscal
spending and more Treasury supply, said BMO's Hill.

Biden opened his widest lead in a month in the U.S.
presidential race after Trump's positive coronavirus test as a
majority of Americans believed the president could have avoided
the infection if he had taken the virus more seriously, the
latest Reuters/Ipsos poll showed.
(Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski)

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