Yields dips as investors prepare for weak fourth quarter

NEW YORK: US Treasury yields fell on Thursday as investors prepared for the prospect of a weak fourth economic quarter, even as strong vaccine results raised hopes that employment is closer to returning to normal.

The number of Americans filing new claims for jobless benefits unexpectedly rose last week as new business closures to control spiraling COVID-19 infections unleashed a fresh wave of layoffs and further slowed the labor market recovery.

"The focus has shifted away from exuberance on vaccines to the rising infection rate and the start of the deterioration of the fundamentals we're seeing in the data heading into Q4," said Subadra Rajappa, head of US interest rates strategy at Societe Generale in New York.

The US death toll from COVID-19 surpassed 250,000 on Wednesday, as New York City's public school system, the nation's largest, called a halt to in-classroom instruction, citing a jump in coronavirus infection rates.

Benchmark 10-year yields fell three basis points to 0.854%. The yields are down from an eight-month high of 0.975% last week, when supply and optimism over vaccines pushed the rates higher.

The yield curve between two-year and 10-year notes flattened one basis point to 69 basis points.

Thirty-year bonds outperformed, with the spread between the bonds and 10-year notes tightening to 72 basis points, the smallest gap since Sept. 8.

Yields are also being pulled down on expectations that the Federal Reserve could increase purchases of long-dated debt by shifting more of its bond purchases further out the curve, or by increasing the overall amount of its quantitative easing.