Citigroup – TREASURIES-Last day of 2020 trading sees yields dip, curve flatten
NEW YORK, Dec 31 (Reuters) – U.S. Treasury yields fell on
Thursday, the last trading day of the year, pulling the yield
curve flatter despite an unexpected drop in unemployment claims
in the United States for a second straight week.
The decline ran counter to recent trends higher in
long-dated yields and a steepening in the Treasury curve on
hopes that the distribution of vaccines would help end the
coronavirus pandemic, which has plunged the global economy into
crisis and killed nearly 2 million people.
Emerging hyper-contagious variants of the coronavirus have
helped mute vaccine optimism for the moment, and may have
contributed to the dip in yields on Thursday, said analysts at
“The focus remains on the immediate concerns over the
surging virus cases and the new strains which have resulted in
renewed and more stringent mitigation measures that are adding
to concerns over a slowing in growth momentum.”
Though longer-dated yields have risen since the all-time
lows hit in March, the 10-year yield closed the year
down 100 basis points and the 30-year yield ended
the year down 74 basis points.
Rates have fallen dramatically as demand for the safe-haven
securities has increased during this year’s pandemic-related
volatility. Yields have also dropped as the Federal Reserve has
ramped up its purchases of Treasury debt in order to bolster the
market, although the bulk of its purchases have been at the
shorter end of the curve.
The Fed’s short-dated Treasury purchases, and interest rate
cuts that lowered the central bank’s key overnight lending rate
to near zero, pushed the two-year yield down 144
basis points this year.
The anchored two-year yield has allowed the yield curve – as
measured by the spread between the two- and 10-year yields
– to steepen by 44.8 basis points in 2020. The
two-year yield is likely to remain near its current level of
0.123% until the U.S. central bank adjusts its interest rate
Yields at the long end of the curve could continue to rise –
the general trend they have followed since a low in August – if
economic data improves in the new year.
Initial claims for state unemployment benefits slid to a
seasonally adjusted 787,000 for the week ended Dec. 26, from
806,000 in the prior week, the Labor Department said on
“The weekly claims numbers left some hope for a positive
nonfarm payrolls print in just over a week’s time,” said Bill
O’Donnell, rates strategist at Citigroup.
The U.S. Labor Department will release its closely watched
monthly jobs report on Jan. 8.
The benchmark 10-year yield on Thursday fell 1
basis point to 0.917%, pulling the spread between the two- and
10-year yields down to 79.2 basis points, the
lowest in a week. The yield on the 30-year bond was
last down 1.6 basis points at 1.646%.
Though the drop in jobless claims is a positive sign for the
U.S. economy, thin trading volume skewed the Treasury market’s
response to the data. With few people in the office, the
Treasury market closing early on Thursday and some international
markets already closed ahead of Friday’s New Year’s holiday,
yields were being directed by one-off trades rather than broader
“Overnight Treasury volume was about 35% of average with
some key markets shut,” O’Donnell said.
The breakeven rate on the 10-year TIPS, which
measures the expected annual inflation for the next 10 years,
rose to 1.991% intraday and closed at 1.986%, its highest since
(Reporting by Kate Duguid
Editing by Leslie Adler and Paul Simao)