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Yields rise as virus variant concerns ease

(Recasts, updates yields, adds analyst comments) By Karen Pierog CHICAGO, Nov 29 (Reuters) – U.S. Treasury yields mostly rose and the curve steepened on Monday amid a waning flight-to-safety bid that had been triggered by the detection of a new coronavirus variant last week, leading to the market’s biggest rally since the onset of the pandemic. The benchmark 10-year yield, which dropped as low as 1.473% on Friday and rose as high as 1.565% earlier on Monday, was last up 3.6 basis points at 1.5209%. Yields move inversely to prices. On the shorter end of the curve, yields also retreated from earlier session highs, with the two-year yield, which reflects short-term interest rate expectations, last down less than a basis point at 0.5157%. On Friday, it tumbled almost 14 basis points, marking its steepest daily fall since March 2020. Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York, said while the flight-to-quality bid that fueled Friday’s rally abated as more information on the new Omicron variant emerged, Treasuries were in “a bit of a back and forth with the stock market” on Monday. “Broadly speaking, bonds are trading very much in line with how treasuries are reacting,” she said, noting that yields rallied a little when Wall Street pulled back from earlier gains. Meanwhile, month-end positioning this week might create some volatility in the Treasury market ahead of Friday’s release of the U.S. government’s November employment report and what it could mean in terms of Federal Reserve moves, according to Kim Rupert, managing director of global fixed income analysis at Action Economics in San Francisco. “I’m not sure (Fed Chair Jerome) Powell really needs a huge number to get maybe a speed-up of the (quantitative easing) taper next month,” she said. “He was saying it was not one number he’s interested in. He’s looking at the cumulative effect and so far, the cumulative effect has been pretty decent.” Rajappa said the jobs report along with November consumer price index data due out next week should set the tone for the Fed, which meets Dec. 14 and 15. “The fundamental question remains if they are concerned about inflation does it makes sense for them to remain dovish and patient on policy?” she said. “If we get another high print, that might hasten the Fed’s sense of urgency to perhaps taper faster and embark on rate hikes sooner than people expected.” Yield curves steepened. A closely watched part of the curve that measures the gap between yields on two- and 10-year Treasury notes was last 3.2 basis points steeper at 100.50 basis points. The spread between five-year notes and 30-year bonds was last up 3.2 basis points at 68.80 basis points. November 29 Monday 3:32PM New York / 2032 GMT Price Current Net Yield % Change (bps) Three-month bills 0.0475 0.0482 -0.005 Six-month bills 0.0925 0.0938 0.003 Two-year note 99-248/256 0.5157 -0.004 Three-year note 99-208/256 0.8143 -0.006 Five-year note 100-84/256 1.1822 0.001 Seven-year note 100-130/256 1.4235 0.016 10-year note 98-168/256 1.5209 0.036 20-year bond 101-24/256 1.9337 0.051 30-year bond 100-12/256 1.8729 0.043 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 23.50 0.75 spread U.S. 3-year dollar swap 22.75 1.50 spread U.S. 5-year dollar swap 11.50 1.00 spread U.S. 10-year dollar swap 5.00 0.50 spread U.S. 30-year dollar swap -17.25 0.50 spread (Reporting by Karen Pierog in Chicago and Tom Westbrook in Sydney Editing by Shri Navaratnam and Andrea Ricci)

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