Yields remain range-bound after jobs data, Trump diagnosis

NEW YORK: The benchmark 10-year US Treasury yield rose modestly on Friday, steepening the yield curve, but remained range-bound in spite of news that President Donald Trump has contracted COVID-19 and that US jobs growth slowed in September.

Demand for safe-haven Treasuries fell on Friday afternoon, lifting yields, as the White House tried to reassure Americans that Trump was still working from isolation. The White House's bombshell announcement earlier in the day that the president had caught the coronavirus threw the administration and presidential election campaign into uncertainty and initially knocked the US stock market lower and raised prices on safe-haven assets.

But investor appetite for risk remained muted, with two of the three major US stock indexes still red on the day, also influenced by the Labor Department's report that US job growth slowed more than expected in September and the ranks of the permanently unemployed swelled.

That underscored an urgent need for additional fiscal stimulus as the COVID-19 pandemic drags on and threatens the economy's recovery.

The benchmark 10-year yield was last up 1.7 basis points to 0.694%, steepening the yield curve modestly as the two-year yield remained anchored. The movement in the 10-year yield remained in line with recent trends.

With the exception of Sept. 29, the 10-year yield has opened and closed with a 5-basis-point range of 0.65% and 0.7% for the past three weeks.

"I'm actually quite surprised by how muted the reaction has been in the Treasury market. Not just following the COVID news earlier this morning from the president (but also) the modestly weaker jobs number. It is really hard to get the Treasury market to react to anything," said Subadra Rajappa, head of US rates strategy at Societe Generale.

This morning's weaker-than-expected jobs report adds to evidence the US recovery has slowed. Though that trend may weigh on yields as safe-haven demand flourishes, heavy supply and the Federal Reserve's unwillingness to move interest rates into negative territory will likely keep yields above the lows hit in August, said Rajappa.

"This is the least volatility in Treasuries that I can remember," said Tom Graff, head of fixed income and portfolio manager at Brown Advisory.

In order for Treasuries to break out of their current range, long-term inflation expectations would have to change, said Graff.

The two-year yield was last 0.2 basis point higher at 0.133%, while the 30-year yield was last up 2.6 basis points to 1.481%.