US yields cling to gains after signing of stimulus bill

NEW YORK: US Treasury yields edged higher yesterday in a holiday-shortened week, as risk appetite rose with shares on Wall Street hitting record highs again after President Donald Trump signed into law overnight an additional coronavirus relief package. Financial markets were closed on Friday for Christmas day.

US yields have since come off their morning highs, however, with trading volume peaking a few hours ago.

The yield curve steepened slightly yesterday, in line with the upbeat mood overall, with the bill signing news adding to positive developments around the world in the last few days that included Covid-19 vaccine rollouts and a Brexit trade deal.

On Sunday, Trump signed a US$2.3 trillion pandemic aid and spending package, retreating from his threat to block the bill. Democrats in the US Congress will try to push through expanded US$2,000 pandemic relief payments for Americans, which Trump had pushed for after the legislation was approved.

“It’s very quiet, volumes are light, ” said Justin Lederer, rates strategist, at Cantor Fitzgerald in New York. “The front end is going to be anchored here. We are going to hold these ranges in the near term.”

The US two-year note auction was underwhelming, with analysts attributing the outcome to thin conditions as well as the increased auction size. The high yield was at 0.137%, a little higher than the expected or “when-issued” level of 0.135% at the bid deadline, suggesting investors want a bit more yield to hold the paper.

There were US$142.3bil in bids for a 2.45 bid-to-cover ratio, a gauge of demand, lower than the 2.71 in November, and the last month and the 2.56 average.

In afternoon trading, US benchmark 10-year yields was little changed at 0.934% from 0.93% late on Thursday.

Cantor’s Lederer said a 1% yield on the 10-year is unlikely to happen this week given that all the positive news such as Brexit and the stimulus are out of the way.

“I am not really sure what would take us to 1%. I think we hold at these levels, ” he added. US 30-year yields climbed to 1.670% from Thursday’s 1.666%. On the front end of the curve, US two-year yields inched up to 0.125% from 0.121% on Thursday.

The yield curve steepened, with the spread between the two-year and 10-year notes at 80.8 basis points.

Last week, that curve hit its widest in more than three years. Breakeven rates on 10-year Tips, which measure expected annual inflation for the next 10 years, were last at 1.967%, little changed from 1.968% on Thursday. — Reuters

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