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TREASURIES-Yield curve steepens as Wall Street recoups some losses

Kate Duguid
·2-min read

(New throughout)

By Kate Duguid

NEW YORK, Oct 29 (Reuters) - Longer-dated Treasury yields rose faster than those at the short end on Thursday afternoon, steepening the yield curve as the stock market retraced some earlier losses.

U.S. stocks advanced as investors piled into technology heavyweights ahead of their earnings reports. The rebound comes after a more than 3% slide a day earlier in Wall Street's major indexes on reports of higher COVID-19 infections globally and ahead of the U.S. presidential election next Tuesday.

The Treasury market, which did not move in step with the earlier rout in stocks, on Thursday afternoon did follow the broader risk-on move, and yields at the long end of the curve hit week highs.

The benchmark 10-year yield was last up 5 basis points to 0.831%, while the two-year yield was roughly unchanged at 0.153%. The yield curve, as measured by the spread between the two- and 10-year yields rose to 63.3 basis points from 62.3 yesterday. A steeper yield curve is typically considered a bullish signal.

The rally in yields at the long end of the curve picked up on Thursday afternoon around the time of a record-size $53 billion auction of new seven-year notes, which was met with weak demand. The increased supply - and weak pickup - pushed prices lower and yields higher.

"Right around the time of the seven-year auction it looks like the market took another leg lower," said Tom Simons, money market economist at Jefferies Group.

Simons suggested that the move in Treasuries may also have been attributable to somewhat limited liquidity in the market.

"The dealers are not really providing as much liquidity and neither are the real money accounts," he said, arguing that Treasury market dealers are preparing for the end of the year, looking to lock in gains, and are therefore not willing to absorb as much additional supply.

"It's not emergency-level stuff where there is no liquidity, but the market is a little thinner than it would have been otherwise." (Reporting by Kate Duguid Editing by Nick Zieminski and Jonathan Oatis)