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Yields edge up as traders eye economic recovery, auctions

(Updates with market activity, chart, previous BOSTON) By Noel Randewich and Ross Kerber July 6 (Reuters) – U.S. Treasury yields edged higher on Monday as investors focused on an eventual economic rebound from the coronavirus, and as traders priced in auctions this week that will increase the supply of the low-risk debt. The benchmark 10-year yield was up 2.5 basis points in afternoon trading at 0.6956%. Treasury auctions, including one for $29 billion of 10-year notes set for Wednesday, will increase the supply of the securities and put pressure on their prices. In addition, Wall Street and global stock markets jumped as investors focused on the prospects of a swift recovery from the COVID-19 pandemic. Last Thursday, ahead of the U.S. holiday weekend, the Labor Department reported that nonfarm payrolls increased in June by the most since the government started keeping records in 1939. “You’ve got the auctions coming up, so there is probably some positioning ahead of those, and you have seen a substantial rally in equity markets,” said Eric Jussaume, director of fixed income for Cambridge Trust. “People are getting caught up to the better than expected economic numbers we had last week.” Investors also bet on China leading the revival from a pandemic-driven downturn, looking past a surge in new cases of COVID-19 at home. During the U.S. Independence Day weekend, several states reported a record increase in new infections, with Florida surpassing the highest daily tally reported by any European country during the peak of the outbreak. 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 54 basis points. That was about two basis points higher than Friday’s close and roughly in line with its level since June 15. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up less than a basis point at 0.1606% in afternoon trading. July 6 Monday 1:41 pm New York / 1741 GMT Price Current Net Yield % Change (bps) Three-month bills 0.1425 0.1445 0.002 Six-month bills 0.165 0.1679 0.006 Two-year note 99-238/256 0.1606 0.006 Three-year note 100-44/256 0.1913 0.010 Five-year note 99-176/256 0.3133 0.016 Seven-year note 99-220/256 0.5205 0.021 10-year note 99-84/256 0.6956 0.025 20-year bond 98-64/256 1.2245 0.030 30-year bond 94-228/256 1.4618 0.029 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 6.50 -0.50 spread U.S. 3-year dollar swap 4.50 -0.25 spread U.S. 5-year dollar swap 2.75 -0.50 spread U.S. 10-year dollar swap -3.00 -0.50 spread U.S. 30-year dollar swap -49.75 0.00 spread (Reporting by Noel Randewich in Oakland, Calif., and by Ross Kerber in Boston; Editing by Andrea Ricci and Chizu Nomiyama)

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