TREASURIES-Yields lower on stimulus, vaccine setbacks ahead of Fed

By Kate Duguid NEW YORK, Dec 12 (Reuters) - Treasury yields were lower across maturities on Friday as complications in negotiations over a U.S. fiscal stimulus deal and a setback for vaccines in Europe increased demand for the safe-haven securities. The two-year yield was at its lowest since Sept. 30, last down 1.8 basis points to 0.121%. The benchmark 10-year yield and the 30-year bond yield were both at their lowest since Dec. 1, respectively down 2.8 basis points to 0.880% and 3 basis points to 1.606%. The move lower in longer-dated yields could potentially affect the Federal Reserve's discussions about the duration of its Treasury purchases at the central bank's policymaking meeting next week. The rally in Treasury prices was part of a broader risk-off move on reports that Congressional wrangling over a spending package and coronavirus aid could drag on through Christmas. Also pulling yields lower, and prices higher, was news from Europe that Sanofi and GlaxoSmithKline said clinical trials of their COVID-19 vaccine showed an insufficient immune response in older people, delaying its launch to late next year and marking a setback in the global fight against the pandemic. The market is being moved by "this push and pull between increases in virus cases, this back and forth on stimulus talks," and both good and bad news on the vaccine front, said Ellis Phifer, market strategist at Raymond James. "There is kind of this discounting mechanism trying to work out how we're going to move forward. We're trying to balance all the risks." Friday is the second consecutive day in which 10- and 30-year yields have moved lower, though it is unclear whether that is the beginning of a reversal in the broader trend higher. Since the lows hit in March, the 10-year yield has risen more than 60 basis points, and the 30-year has risen nearly 100. The two-year yield, by comparison, hit an all-time low in May and has since risen about 4 basis points. Both rates have increased enough in the past several months that some analysts believe the Fed will purchase more longer-dated debt to cap yields and keep borrowing costs low. Since March the Fed has bought more than $2 trillion worth of Treasury debt, most of it in shorter-dated notes. The Fed's policymaking committee is scheduled to meet next week. Not all analysts are convinced the Fed will reweight its Treasury purchases at its December meeting. "I don't think they're going too be too concerned about talking about it now," said Phifer. "The yield curve has certainly steepened a little bit here, but we can't seem to get past 1% so I don't think they're going to be talking about it too much." December 11 Friday 10:55AM New York / 1555 GMT Price Current Net Yield % Change (bps) Three-month bills 0.07 0.071 -0.008 Six-month bills 0.0775 0.0786 -0.005 Two-year note 100-2/256 0.121 -0.018 Three-year note 99-222/256 0.1694 -0.027 Five-year note 100-26/256 0.3543 -0.029 Seven-year note 100-16/256 0.6158 -0.030 10-year note 99-248/256 0.8783 -0.030 20-year bond 99-140/256 1.4011 -0.031 30-year bond 100-120/256 1.6052 -0.031 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 7.75 0.50 spread U.S. 3-year dollar swap 6.75 0.75 spread U.S. 5-year dollar swap 6.00 0.50 spread U.S. 10-year dollar swap -1.00 -0.50 spread U.S. 30-year dollar swap -29.75 -1.75 spread (Reporting by Kate Duguid; Editing by Ken Ferris)