Yields fall as global COVID cases soar

NEW YORK: US Treasury yields fell on Wednesday morning and the yield curve was flatter as coronavirus infections surged across the globe and Europe prepared to announce fresh lockdowns.

Germany and France are planning strict restrictions not seen since the spring on Wednesday as COVID-19 deaths across Europe rose almost 40% in a week, sending risk assets sharply lower on fears of the likely costs. The measures follow similar moves in Spain and Italy. The United States and Russia also have seen record numbers of infections in recent days.

The benchmark 10-year yield was down 2.5 basis points in early trade at 0.753%. The Treasury yield curve - as measured by the spread between two- and 10-year Treasury notes was down 1.9 basis points to 60.2 basis points. A flattening yield curve is a bearish signal, indicating a weaker economic outlook.

"Treasuries bull flattened further overnight as global risk assets came under pressure on renewed lockdown momentum in Europe. The implications from a resurgence of the pandemic as winter approaches will guide domestic equities in the medium term; although the election will offer an interim distraction next week," said Ian Lyngen, head of US rate strategy at BMO Capital Markets.

Lyngen noted that moves in the Treasury market were likely to remain rangebound until after the US presidential election on Nov. 3, which because of high levels of mail-in voting may be fought out in the courts if there is no immediate definitive result.

US yields were also hit after President Donald Trump acknowledged that a coronavirus economic relief deal would likely come after the election, with the White House unable to bridge differences with fellow Republicans in the Senate as well as congressional Democrats.

The two-year US yield, which typically moves in step with interest rate expectations, was down half a basis point at 0.147% in early trade.