Yields rise, but stay in tight range as investors weigh virus risks

[NEW YORK] US Treasury yields rose on Friday as investors weighed the prospect of new economic damage from shutdowns meant to stem the spread of Covid-19 against the possibility that the worst has passed.

The United States shattered its daily record for coronavirus infections on Thursday, reporting more than 77,000 new cases as the number of deaths in a 24-hour period rose by nearly 1,000, according to a Reuters tally.

But risk appetite remains strong and stocks rose on Friday on optimism about an economic recovery.

Treasuries are "taking cues from Covid headlines and equities, but its not exactly one for one," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York. "On the backups there's buyers, but we're not really breaking out of any ranges here."

The yield on benchmark 10-year notes rose two basis points to 0.628 per cent. The yield has held in a tight range from 0.569 per cent to 0.784 per cent since mid-June.

The yield curve between two-year and 10-year notes steepened one basis point to 48 basis points.

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Data on Friday showed that US home building increased in June by the most in nearly four years amid reports of rising demand for housing in suburbs and rural areas as companies allowed employees to work from home during the Covid-19 pandemic.

But a resurgence in new coronavirus infections across the country eroded consumer sentiment in mid-July, other data showed on Friday, threatening the nascent housing and economic recovery.

The Treasury Department will sell US$17 billion in 20-year bonds and US$14 billion in 10-year Treasury-Inflation Protected Securities (TIPS) next week.

TIPS have rallied for the past few months on expectations that stimulus from the US government and Federal Reserve will spur inflation.

Yields on 10-year TIPS fell to minus 0.84 per cent on Friday. They have dropped from around minus 0.40 per cent in early June.

The US Treasury said on Friday it has asked primary dealers for their input on whether it should make technical adjustments to its Treasury note and bond auction schedules in light of the massive run-up in debt issuance to pay for Covid-19 emergency relief programs. 

REUTERS