TREASURIES-U.S. yields plunge on fears virus variant to hamper growth

    (Adds Treasury auctions later in week, COVID-19 case data)
    By Herbert Lash
    NEW YORK, July 19 (Reuters) - U.S. Treasury bond yields
tumbled to five-month lows on Monday as the rapid increase in
new coronavirus cases sparked fears global growth would slow and
hamper the reopening of economies.
    The average number of new U.S. COVID-19 cases per day has
tripled in the past 30 days, according to an analysis of Reuters
data. In the month from June 18 to Sunday, it climbed from
12,004 to 32,136.
    New cases, hospitalizations and deaths due to the Delta
variant have been on the rise in recent weeks but markets
overall only reacted on Monday.
    "This looks like a global flight to quality/risk-off event,"
said Scott Buchta, head of fixed income strategy at Brean
Capital in Chicago.
    "The speed to the move down in yields almost mirrors the
pace at which yields moved higher in February and March - too
far, too fast," he said in an e-mail.
    The yield on benchmark 10-year notes fell 12.2
basis points to 1.177%, close to the session's low of 1.176%, a
level last seen in February.
    Yields on the 30-year Treasury bond slid 11.8
basis points to 1.812% as stock markets worldwide fell while the
safe-haven dollar and Swiss franc rose in a flight to safety.
    The fundamental drivers of the bond market point to yields
moving higher, not lower, said Stan Shipley, macro research
analyst at Evercore ISI in New York.
    "But the wild card that we've had to deal with for the last
year and a half is the coronavirus and now the variant," he
said. "Most data on the variant unfortunately is deteriorating,
so people are scrambling for safety until they can figure out
what's happening."
    The Delta variant's spread has sparked risk-aversion,
pushing U.S. and European bond yields lower and leaving stocks
facing their longest losing streak since the pandemic first hit
global markets 18 months ago.
    Fed Fund futures, a widely used security for hedging
short-term interest rate risk, showed the chances of the Federal
Reserve hiking rates in December 2022 dropped to 58% from 90% on
July 13, when the U.S. consumer price index was released.
    The likelihood that the Fed hikes rates in January 2023 fell
to 70% from 100% last Tuesday, while futures now are fully
pricing in a hike in March 2023.
    Japanese stocks fell for a fourth straight session as the
variant hit sentiment, England's "freedom day" ending COVID-19
lockdowns was marred by surging infections and Australian
officials said Victoria state would extend a lockdown to slow
the variant's spread.
    "That's the sentiment that's driving the rates market today
- the expectation that maybe we'll slip back a little bit after
all the progress we've made," said Gennadiy Goldberg, interest
rate strategist at TD Securities in New York.
    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 96.8 basis points.
    The two-year U.S. Treasury yield, which typically
moves in step with interest rate expectations, was down 1.9
basis points at 0.208%.
    The breakeven rate on five-year U.S. Treasury
Inflation-Protected Securities (TIPS) was last at
    The 10-year TIPS breakeven rate was last at
2.257%, indicating the market sees inflation averaging just
under 2.3% a year for the next decade.
    The U.S. Treasury will auction $24 billion of 20-year bonds
on Wednesday and $16 billion of 10-year TIPS on Thursday.

July 19 Monday 3:03PM New York / 1903 GMT
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.045        0.0456    0.000
 Six-month bills               0.0475       0.0482    -0.003
 Two-year note                 99-215/256   0.2075    -0.019
 Three-year note               100          0.375     -0.055
 Five-year note                100-234/256  0.6867    -0.091
 Seven-year note               101-240/256  0.9609    -0.110
 10-year note                  104-36/256   1.1772    -0.122
 20-year bond                  108-168/256  1.7321    -0.124
 30-year bond                  112-236/256  1.8121    -0.118

                               Last (bps)   Net
 U.S. 2-year dollar swap         7.00        -0.75
 U.S. 3-year dollar swap         8.25        -1.75
 U.S. 5-year dollar swap         6.00        -1.75
 U.S. 10-year dollar swap       -2.75        -1.50
 U.S. 30-year dollar swap      -31.50        -1.50

 (Reporting by Herbert Lash; Additional reporting by Karen
Brettell, Gertrude Chavez-Dreyfuss in New York and Karen Pierog
in Chicago; Editing by Kirsten Donovan, Dan Grebler and Andrea

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.