Bond, stock divergence continues as investors await data



By Ross Kerber

Aug 3 (Reuters) - Traders left U.S. Treasury yields little changed on Tuesday as they awaited economic data, reinforcing an unusual divergence between bond and equity price trends.

Even as stock markets have been fired up by strong corporate earnings, the benchmark 10-year yield US10YT=RR sagged below 1.2% on Monday and was at 1.1656% on Tuesday morning, down less than a basis point for the session. The trading was in line with the note's steady march down from this year's high yield of 1.776% reached March 30.

"Stocks and bonds have been living two separate lives over the past few months," said Padhraic Garvey, head of research for ING Americas.

Traditionally the rush into Treasuries would signal economic pessimism, but bond-buying by the U.S. Federal Reserve and other central banks has made the significance of the low yields "hard to decipher," he said.

Forthcoming economic data including a closely watched jobs report due Friday could provide investors clearer signals.

Fed leaders are hashing out just how quickly to end crisis-era policies. In an interview with Reuters on Monday, St. Louis Fed President James Bullard said the COVID-19 pandemic may have pushed the United States into a volatile era of stronger growth and better productivity, but also higher interest rates and faster inflation.

Wall Street's main indexes opened higher on Tuesday.

The yield on 10-year Treasury Inflation Protected Securities US10YTIP=RR was -1.179%, up from its record low of -1.214% reached Monday. The 10-year TIPS break-even inflation rate was at 2.35%, little changed from the day before.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes US2US10=RR , seen as an indicator of economic expectations, was at 99 basis points, about 2 basis points lower than Monday's close.

The two-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was unchanged at 0.1762%.

August 3 Tuesday 9:39 AM New York / 1339 GMT

Price

Current Net

Yield % Change

(bps) Three-month bills US3MT=RR 0.05

0.0507

-0.002 Six-month bills US6MT=RR

0.055

0.0558

-0.002 Two-year note US2YT=RR

99-230/256 0.1762

0.000 Three-year note US3YT=RR

100-42/256 0.319

-0.003 Five-year note US5YT=RR

99-228/256 0.6473

-0.003 Seven-year note US7YT=RR

100-102/256 0.941

-0.006 10-year note US10YT=RR

104-60/256 1.1656

-0.006 20-year bond US20YT=RR

108-104/256 1.7455

-0.011 30-year bond US30YT=RR

112-52/256 1.8408

-0.010

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap

7.50

0.00

spread

U.S. 3-year dollar swap

11.50

-0.25

spread

U.S. 5-year dollar swap

8.75

-0.25

spread

U.S. 10-year dollar swap

2.25

-0.50

spread

U.S. 30-year dollar swap

-25.50

-0.50

spread


Reporting by Ross Kerber in Boston

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