Yields take a breather ahead of presidential debate

NEW YORK: US Treasury yields were roughly flat toward the end of a quiet Monday, with no significant data releases or Treasury issuance on the calendar, and investors holding off from making significant moves ahead of Tuesday's presidential debate.

The benchmark 10-year yield was up 0.2 basis point on the day at 0.661%, with the 30-year yield last up 1.6 basis points at 1.421%. The two-year yield was unchanged on the day at 0.131%.

"Today the price action is modest, which is what you would expect. There is a very quiet data calendar and no supply to speak of. To me, the most important risk for markets in the next five-six weeks is the presidential election, followed closely by a second wave of COVID," said Jon Hill, US rates strategist at BMO Capital Markets.

The first debate between the two candidates for the US presidency - incumbent Republican Donald Trump and former Vice President Joe Biden, a Democrat - is scheduled for Tuesday evening.

With five weeks to go until the Nov. 3 general election, the stakes are high. Trump has recently refused to commit to a peaceful transfer of power if he loses the election to Biden, and has said he expects the Supreme Court will have to declare a winner.

"For better or worse, Treasuries are priced for a pretty quiet few weeks. There is a little bit of election uncertainty priced into this market, but I think the reality is, because of all the uncertainties around the vote and the possibility of a difficult transition, it has really kept a lot of people highly focused on the topic, but not necessarily with high convictions," said Hill.

A slew of investment-grade corporate bond deals came to market on Monday, which may also have contributed to slower demand for US government debt. Just under $4 billion in new high-grade corporate paper had been priced by mid-afternoon Monday, with a three-part $2 billion deal from Pernod Ricard still expected to come.

"Positioning on credit may have a little bit of influence on rates. We've got a decent amount of new issue credit deals this week ahead of the start of earnings season. Positioning ahead of the credit supply probably is having an influence in the rates market as well" said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.