TREASURIES-Yield curve flatter on coronavirus, stimulus concerns

By Ross Kerber

Oct 26 (Reuters) - Longer-term U.S. Treasury yields fell on Monday as investors sold stocks amid a fast-rising case count in the COVID-19 pandemic and as stimulus talks in Washington dragged on.

The benchmark 10-year US10YT=RR yield was down 4.3 basis points in afternoon trading at 0.7977%, well below its four-month high reached on Friday.

New coronavirus infections touched record levels in the United States recently, with El Paso, Texas, asking citizens to stay at home for the next two weeks, while in Europe, Italy and Spain imposed new restrictions.

Equity markets fell and the Dow was on track for its worst day in more than seven weeks.Traders worry additional lockdowns will slow economies, a story the U.S. Treasury market seemed to ignore for much of October, said Jim Barnes, director of fixed income for Bryn Mawr Trust.

In addition. investors had hoped for a stimulus deal between Republicans and Democrats that would prop up prices, but that seemed little closer as of Monday.

"The market has been having a hard time looking beyond the short-term disagreements" in Washington, Barnes said.

Jim Vogel, interest rate strategist for FHN Financial, said another factor in Monday's trading was the difficulty of predicting which party will control the U.S. Senate after the Nov. 3 elections.

"There's enough uncertainty with regards to how the Senate elections come out, it's easier to wait rather than sell Treasuries on the expectation of a certain outcome," Vogel said.

Democratic control, coupled with a predicted win for the party's presidential candidate Joe Biden, is generally expected to send markets higher on the expectation of an end to Washington gridlock, he said.

In a research note on Monday analysts for top asset manager BlackRock Inc BLK.N wrote they had downgraded U.S. Treasuries and upgraded their inflation-linked counterparts ahead of the election, citing a growing likelihood of fiscal expansion that would occur should Democrats win both the White House and the U.S. Senate.

"This electoral outcome would bring forward the market pricing of the higher inflation regime that we were already reflecting in our strategic asset views," BlackRock wrote.

A closely watched part of the U.S. Treasury yield curve, measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR seen as an indicator of economic expectations, was at 65 basis points, about 4 basis points lower than Friday's close.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was down less than a basis point at 0.1494% in afternoon trading.

October 26 Monday 2:02PM New York / 1802 GMT

Price

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.0925

0.0938

0.000

Six-month bills US6MT=RR

0.11

0.1116

-0.002

Two-year note US2YT=RR

99-244/256

0.1494

-0.006

Three-year note US3YT=RR

99-208/256

0.1884

-0.014

Five-year note US5YT=RR

99-136/256

0.346

-0.024

Seven-year note US7YT=RR

98-176/256

0.5685

-0.035

10-year note US10YT=RR

98-96/256

0.7977

-0.043

20-year bond US20YT=RR

96

1.356

-0.053

30-year bond US30YT=RR

94-232/256

1.5902

-0.056

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

8.50

0.25

U.S. 3-year dollar swap spread

8.00

0.25

U.S. 5-year dollar swap spread

6.75

0.00

U.S. 10-year dollar swap spread

2.50

0.00

U.S. 30-year dollar swap spread

-34.00

0.50

(Reporting by Ross Kerber in Boston Editing by Nick Zieminski/Mark Heinrich)

((ross.kerber@thomsonreuters.com; (617) 856 4341; Reuters Messaging: Ross.Kerber.Reuters.com@Reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.