TREASURIES-U.S. yields tumble on virus woes as investors see soft data next week

U.S. Treasury yields dropped on

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Friday in thin post-holiday trading, weighed down by persistent
concerns about the continued surge in coronavirus cases and
possibly weaker economic data next week amid renewed lockdowns
in several U.S. states and around the world.

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Markets were closed on Thursday for the U.S. Thanksgiving
holiday.

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The yield curve also flattened for a second straight day, as
long-end yields continued to fall, with investors mulling the
prospect that the Federal Reserve could extend purchases to
longer-dated maturities possibly at this month's Fed meeting.
The surging COVID-19 numbers though remained a market focus
despite positive news on the vaccine front.

"The Fed minutes on Wednesday were obviously talking about
its asset purchase program, potentially doing a number of
things," said Gregory Faranello, head of U.S. rates at AmeriVet
Securities in New York.
"But certainly if you listen to the Fed...they like the
vaccine in the medium term, but short term, they are concerned
about COVID. This is certainly enough of a dynamic to peel away
the euphoria over the vaccine in the short term," he added.
U.S. coronavirus deaths were now at more than 260,000, while
cases continued to grow, nearing 13 million.
Next week's heavy slate of U.S. economic data, which
includes non-farm payrolls for November, could reinforce
expectations of a setback in the U.S. recovery as several states
instituted shutdowns to prevent the spread of the virus,
analysts said.
In early afternoon trading, U.S. benchmark 10-year yields
fell to 0.842%, from 0.878% late on Wednesday.
U.S. 30-year yields slid to 1.575% from
Wednesday's 1.62%.
On the front end of the curve, U.S. two-year yields dropped
to a two-week low of 0.154% and was last at that level
from 0.16% on Wednesday.
The yield curve flattened, with the spread between the
two-year and 10-year notes narrowing to 68.8 basis points
.
Fed policymakers in November discussed how the central
bank's asset purchases could be modified to maximize support for
the markets, according to the Fed minutes released on Wednesday.
Some participants said they expected the Fed to eventually
lengthen the maturity of the bonds purchased.
Some investors already were raising their expectations that
the Fed may increase its government bond purchases or adjust the
maturity of bonds purchased.
"The Fed has been very clear that the next step if anything
is on asset purchases," said Amerivet's Faranello. "Do I think
there is a lot of buying in the market to get in front of this
potential long-end change that the Fed could make? I think it
has been enough to quell the sell-off in rates."

November 27 Friday 1:45PM New York / 1845 GMT Price Current Net
Yield % Change
(bps)
Three-month bills 0.0825 0.0839 -0.002
Six-month bills 0.095 0.0964 0.005
Two-year note 99-241/256 0.1544 -0.006
Three-year note 100-40/256 0.197 -0.011
Five-year note 100-8/256 0.3687 -0.020
Seven-year note 100-20/256 0.6136 -0.032
10-year note 100-80/256 0.8422 -0.036
20-year bond 100-48/256 1.3642 -0.043
30-year bond 101-44/256 1.5758 -0.044

DOLLAR SWAP SPREADS
Last (bps) Net
Change
(bps)
U.S. 2-year dollar swap 9.50 0.00
spread
U.S. 3-year dollar swap 9.75 0.75
spread
U.S. 5-year dollar swap 6.50 0.00
spread
U.S. 10-year dollar swap 0.25 0.25
spread
U.S. 30-year dollar swap -32.25 -0.50
spread (Reporting by Gertrude Chavez-Dreyfuss
Editing by Alistair Bell and Chizu Nomiyama)