Yields dip as economic stimulus talks intensify

CHICAGO: US Treasury yields headed lower on Tuesday despite mostly higher stocks, as markets focused on negotiations over new federal aid to boost the coronavirus-hit economy.

The benchmark 10-year yield was last down 1.5 basis points at 0.6053%.

Ben Jeffery, a strategist at BMO Capital Markets in New York, said US Federal Reserve purchases of bonds and the central bank's commitment to keep interest rates low have removed volatility from Treasuries while being positive for stocks.

"This (trading) range that we've seen continues to hold despite what's been an impressive run in stocks," he said.

Meanwhile, negotiations between congressional lawmakers and the White House over a new round of aid intensified on Tuesday as virus infections and deaths surged to record levels.

Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research in New York, said a bigger-than-expected fiscal stimulus bill could steepen the yield curve "and encourage expectations that maybe we get a little more growth sooner rather than later and the Fed might pivot sooner rather than later" in what would be a surprising but possible scenario.

Jones said if a lot more states shut down again and evidence emerges that the economy is rolling back over to recession, the 10-year yield could head lower.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was last down less than a basis point at 0.1432%.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, which is viewed as an indicator of economic expectations, was last at 46 basis points, less than a basis point lower than at Monday's close. No bids were submitted in 28-day and overnight repurchase agreement (repo) operations, according to the New York Federal Reserve.