Company News

TREASURIES-Yield curve steepens modestly on positive U.S. data

NEW YORK, Oct 30 (Reuters) - The Treasury yield curve steepened slightly on Friday morning after positive U.S. economic data, but the move was muted as nerves about next week’s election kept investors from making big bets.

U.S. consumer spending increased more than expected in September, according to a report from the Commerce Department on Friday, but decreasing benefits for millions of unemployed Americans and a resurgence in COVID-19 cases across the nation could crimp spending in the fourth quarter.

The report also showed inflation remain muted last month, which could allow the Federal Reserve to keep interest rates near zero for a while to aid the recovery from the COVID-19 recession as fiscal stimulus runs out.

Reports later in the morning showed a slight rise in consumer sentiment as measured by a survey from the University of Michigan, and a survey of business sentiment in the manufacturing industry around the Chicago area also beat consensus estimates.

The benchmark 10-year yield was last up 1.6 basis points to 0.852%. The front end of the curve was anchored with the two-year yield roughly flat at 0.153%, steepening the yield curve by 2.8 basis points to 69.9 basis points.

The current move in the yield curve may accelerate in the near term, some analysts argued.

“Consensus estimates and the official estimates - whether it’s from the Fed, the IMF, the OECD or the World Bank - which reflect the broader investor community, those estimates... really are quite pessimistic,” said John Herrmann, director of U.S. rates strategies at MUFG Securities.

“As time goes on, investors have to build in a more optimistic perspective on the underlying economy.”

Analysts also noted that traders were unlikely to make large changes in positions before the Nov. 3 election. Though markets are betting that Democratic challenger Joe Biden will defeat President Donald Trump, high levels of mail-in voting may lead to a court fight over the result if there is no immediate definitive winner.

“I’d be surprised to see a huge move today as people are probably just trying to get themselves positioned somewhat neutrally heading into the weekend prior to such a consequential week with the election, refunding, FOMC and non-farm payrolls,” said Zach Griffiths, rates strategist at Wells Fargo Securities. (Reporting by Kate Duguid Editing by Marguerita Choy)