TREASURIES-Yield curve flatter on coronavirus, stimulus concerns

    (Updates with market activity, analyst comment, BlackRock (BLK)
    By Ross Kerber
    Oct 26 (Reuters) - Longer-term U.S. Treasury yields fell on
Monday as investors sold stocks amid a fast-rising case count in
the COVID-19 pandemic and as stimulus talks in Washington
dragged on.
    The benchmark 10-year yield was down 4.3 basis
points in afternoon trading at 0.7977%, well below its
four-month high reached on Friday.
    New coronavirus infections touched record levels in the
United States recently, with El Paso, Texas, asking citizens to
stay at home for the next two weeks, while in Europe, Italy and
Spain imposed new restrictions.
    Equity markets fell and the Dow was on track for its worst
day in more than seven weeks. Traders worry
additional lockdowns will slow economies, a story the U.S.
Treasury market seemed to ignore for much of October, said Jim
Barnes, director of fixed income for Bryn Mawr Trust.
    In addition. investors had hoped for a stimulus deal between
Republicans and Democrats that would prop up prices, but that
seemed little closer as of Monday.
    "The market has been having a hard time looking beyond the
short-term disagreements" in Washington, Barnes said.

    Jim Vogel, interest rate strategist for FHN Financial, said
another factor in Monday's trading was the difficulty of
predicting which party will control the U.S. Senate after the
Nov. 3 elections.
    "There's enough uncertainty with regards to how the Senate
elections come out, it's easier to wait rather than sell
Treasuries on the expectation of a certain outcome," Vogel said.
    Democratic control, coupled with a predicted win for the
party's presidential candidate Joe Biden, is generally expected
to send markets higher on the expectation of an end to
Washington gridlock, he said.
    In a research note on Monday analysts for top asset manager
BlackRock Inc (BLK) wrote they had downgraded U.S. Treasuries
and upgraded their inflation-linked counterparts ahead of the
election, citing a growing likelihood of fiscal expansion that
would occur should Democrats win both the White House and the
U.S. Senate.
    "This electoral outcome would bring forward the market
pricing of the higher inflation regime that we were already
reflecting in our strategic asset views," BlackRock (BLK)
     A closely watched part of the U.S. Treasury yield curve,
measuring the gap between yields on two- and 10-year Treasury
notes seen as an indicator of economic
expectations, was at 65 basis points, about 4 basis points lower
than Friday's close.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down less
than a basis point at 0.1494% in afternoon trading.

    October 26 Monday 2:02PM New York / 1802 GMT

                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.0925       0.0938    0.000
 Six-month bills               0.11         0.1116    -0.002
 Two-year note                 99-244/256   0.1494    -0.006
 Three-year note               99-208/256   0.1884    -0.014
 Five-year note                99-136/256   0.346     -0.024
 Seven-year note               98-176/256   0.5685    -0.035
 10-year note                  98-96/256    0.7977    -0.043
 20-year bond                  96           1.356     -0.053
 30-year bond                  94-232/256   1.5902    -0.056

                               Last (bps)   Net
 U.S. 2-year dollar swap         8.50         0.25
 U.S. 3-year dollar swap         8.00         0.25
 U.S. 5-year dollar swap         6.75         0.00
 U.S. 10-year dollar swap        2.50         0.00
 U.S. 30-year dollar swap      -34.00         0.50

 (Reporting by Ross Kerber in Boston
Editing by Nick Zieminski/Mark Heinrich)

Copyright © Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.

News, commentary and research reports are from third-party sources unaffiliated with Fidelity. Fidelity does not endorse or adopt their content. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use.