Yields dip in light trading, Brexit, US stimulus in focus

NEW YORK: U.S Treasury yields dropped in light trading on Thursday as investors squared positions for year-end, after benchmark yields neared 1% on Wednesday on optimism about a Brexit deal.

Ten-year yields jumped and a key part of the yield curve hit its steepest level in more than three years on Wednesday as Britain appeared close to reaching a trade deal with the European Union and avert turbulent rupture on New Year's Day, almost a year after it formally exited the bloc.

Sources in London and Brussels on Thursday said a deal was close, however haggling over just how much fish such as sole, sand eels and herring EU boats should be able to catch in British waters was delaying the announcement.

Benchmark 10-year yields traded in a small range on Thursday as investors squared positions before the Christmas Day holiday on Friday, with many traders out for the rest of the year.

They were last at 0.936%, down two basis points on the day, after a two-week high of 0.973% on Wednesday.

The two-year, 10-year yield curve flattened one basis point to 82 basis points, after reaching 85 basis points on Wednesday, the steepest since October 2017.

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.

Breakeven rates on 10-year TIPS, which measure expected annual inflation for the next decade, were last at 1.97%, after rising to 1.98% on Wednesday, the highest since at least early 2019.

Investors are also focused on when US stimulus will be passed, after President Donald Trump threatened on Tuesday to not sign an $892 billion coronavirus bill, saying that sums paid to individuals were too small.

Democrats in the US House of Representatives aim on Thursday to win quick passage of legislation providing $2,000 in direct payments to Americans, up from the $600 originally proposed.

The bond market will close early at 2 p.m. EST on Thursday and remain shut on Friday for Christmas Day.