July 23, 2020 / 7:17 PM / 11 days ago

TREASURIES-Yields fall, record-low auction yield hit for 10-year TIPS

 (Recasts, updates yields, adds auction results, analyst
comments)
    By Karen Pierog
    CHICAGO, July 23 (Reuters) - U.S. Treasury yields on the
longer end of the yield curve drifted lower on Thursday as
stocks fell and the auction yield for 10-year Treasury-Inflation
Protected Securities (TIPS) hit an all-time low.
    The benchmark 10-year yield was last down 1.4
basis points at 0.5807%.
    The $14 billion of 10-year TIPS were sold at -0.930%, the
lowest yield ever in an auction of that security. TIPS yields
are equal to relevant Treasury yields minus expected annual
inflation, making them a market indicator of real interest
rates.
    The bid-to-cover ratio, a metric of overall demand, was
2.24.
    The auction went "pretty well," according to Tom Simons, a
money market economist at Jefferies in New York.
    "The direct bid was a little soft, which is not all that
unusual in recent times," he said, adding there was a strong
take down on the indirect bid side. 
    A rush into TIPS has pushed yields to near historic lows
amid an uptick in inflation expectations. The
10-year TIPS yield was last at -0.881%.
    "With the amount of stimulus that's out there, it's hard to
believe that there's not some inflation that's going to come out
of this," said John Mousseau, president and CEO of Cumberland
Advisors. 
    The latest weekly jobless claims data, which showed initial
claims rising for the first time since late March did little to
jar the market, which was closely following ongoing talks in
Washington over the next round of aid to combat the economic
fallout from the coronavirus pandemic.
    "We're waiting for more direction on what's going on with
potential stimulus. We get bits and pieces of headlines here and
there that's not helpful for the market finding direction,"
Simons said.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was up less than
a basis point at 0.1493%.
    A closely-watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, which is viewed as an indicator of
economic expectations, was last at 43 basis points, about 1.4
basis point lower than at Wednesday's close.
    July 23 Thursday 1:43PM New York / 1843 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.1125       0.1141    -0.008
 Six-month bills               0.1325       0.1344    0.002
 Two-year note                 99-244/256   0.1493    0.002
 Three-year note               99-222/256   0.1698    0.000
 Five-year note                99-236/256   0.2659    -0.003
 Seven-year note               100-108/256  0.4382    -0.009
 10-year note                  100-108/256  0.5807    -0.014
 20-year bond                  101-196/256  1.0263    -0.038
 30-year bond                  100-24/256   1.2462    -0.044
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         6.00        -0.25    
 spread                                               
 U.S. 3-year dollar swap         4.50        -0.25    
 spread                                               
 U.S. 5-year dollar swap         3.25         0.00    
 spread                                               
 U.S. 10-year dollar swap       -1.50         0.50    
 spread                                               
 U.S. 30-year dollar swap      -43.75         2.75    
 spread                                               
                                                      
 

 (By Karen Pierog
Editing by Nick Zieminski and Cynthia Osterman)
  
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