Yields dip as investors balance virus concerns against stimulus

NEW YORK: US Treasury yields fell on Tuesday as investors weighed the likelihood of new lockdowns stemming from a more infectious variant of the coronavirus in the United Kingdom against the impact of US fiscal stimulus.

Benchmark 10-year yields fell to one-and-a-half week lows early on Monday as countries shut off travel ties with the U.K. The yields have since fluctuated as investors focus on whether the new variant will be resistant to vaccines.

BioNTech is testing the effectiveness of the COVID-19 vaccine it developed with Pfizer against the mutation as it prepares to send 12.5 mln doses to EU countries by the end of year.

"The markets will continue to assess the threat from the new strain of virus and the more stringent lockdowns," analysts at Action Economics said in a report on Tuesday. At the same time, the stimulus is "helping revive investor sentiment."

The US Congress on Monday approved an $892 billion coronavirus aid package, throwing a lifeline to the nation's pandemic-battered economy after months of inaction, while also keeping the federal government funded.

US 10-year yields were last down two basis points on the day at 0.918% after falling as low as 0.882% on Monday.

The yield curve between two-year and 10-year notes flattened one basis point to 80 basis points, holding just below an almost three-year high of 83 basis points reached on Friday.

Longer-dated Treasury yields have risen and the yield curve has steepened on expectations that more fiscal spending and ultra loose Federal Reserve policy will spur higher inflation.

The Treasury Department will sell $15 billion in five-year Treasury-Inflation-Protected-Securities (TIPS) on Tuesday.

Breakeven rates on the five-year TIPS, which measure expected annual inflation, rose to 1.90% on Tuesday, from a low of 1.88% on Monday.

Market liquidity is low and expected to decline with many traders out before Friday's Christmas holiday. The bond market will close early at 2 p.m. EST on Thursday and be closed on Friday for the Christmas Day.