(Updates with market activity, jobless claims data, analyst comment) By Ross Kerber July 30 (Reuters) - Traders drove U.S. Treasury yields to their lowest in months on Thursday after data showed the U.S. economy contracted at its steepest pace in decades and President Donald Trump tweeted about delaying the Nov. 3 presidential election. The benchmark 10-year yield was down 3.8 basis points at 0.5429% in afternoon trading after going as far down as 0.538%, its lowest since March 9. Yields on other Treasuries also fell and the 5-year note hit an all-time low of 0.228% as investors sought the government bonds to protect against economic and political uncertainty. The pattern of the session was set in the morning when the Commerce Department said gross domestic product fell at a 32.9% annualized rate in the second quarter, largely in April after restaurants, bars and factories had to close to slow the spread of the COVID-19 pandemic. About the same time, the Labor Department said U.S. jobless claims rose to 1.434 million for the week of July 25, up from 1.422 million in the prior week. "People are worried that with the pickup in COVID the economy is moving backwards a step, and that's what drove them into the safe haven of bonds," said Andrew Richman, director of fixed income strategies for Truist/SunTrust Advisory Services. Soon after, at 8:46 a.m. EDT, Trump raised the possibility of delaying the nation's November presidential election. Trump, without evidence, repeated his claims of mail-in voter fraud and wrote on Twitter: "delay the election until people can properly, securely and safely vote???" Together the events turned investors more cautious, with major U.S. stock indexes lower. The economic data reinforced the inclination of the Federal Reserve to add to accommodative policy, while Trump's tweet cast doubt on whether the U.S. election will be conducted smoothly, market analysts said. "Certainly President Trump's tweet was read as a negative in the equity and bond markets. It created a risk-off trade," said Tom di Galoma, managing director of Seaport Global Holdings. 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 42 basis points, about 2 basis points lower than Wednesday's close and well below its level of 68 basis points on June 5. The yield on the two-year note, seen as an indicator of inflation expectations, was down less than a basis point at 0.123% in afternoon trading. It reached as low as 0.117% at one point in the morning, close to its all-time low of 0.105% on May 8. July 30 Thursday 1:51PM New York / 1751 GMT Price US T BONDS SEP0 182-8/32 0-31/32 10YR TNotes SEP0 140 0-64/256 Price Current Net Yield % Change (bps) Three-month bills 0.095 0.0963 -0.005 Six-month bills 0.1025 0.1043 -0.008 Two-year note 100-1/256 0.123 -0.006 Three-year note 99-246/256 0.1383 -0.011 Five-year note 100-24/256 0.2311 -0.022 Seven-year note 99-208/256 0.4022 -0.032 10-year note 100-200/256 0.5429 -0.038 20-year bond 102-168/256 0.977 -0.045 30-year bond 101-76/256 1.1981 -0.046 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 6.50 -1.00 spread U.S. 3-year dollar swap 5.25 -1.00 spread U.S. 5-year dollar swap 3.75 -0.25 spread U.S. 10-year dollar swap -1.00 0.00 spread U.S. 30-year dollar swap -41.75 0.00 spread (Reporting by Ross Kerber in Boston; Editing by Andrea Ricci and Jonathan Oatis)
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