(Recasts, updates yields, adds analyst comments) By Karen Pierog and Ross Kerber CHICAGO/BOSTON, May 1 - U.S. Treasury yields moved a little higher on Friday as the market looked ahead to next week's projection for U.S. borrowing in the second quarter to finance enormous stimulus efforts aimed at combating the economic fallout of the coronavirus outbreak. The benchmark 10-year yield was last up 1.4 basis point at 0.6386%. "It's hard to envision someone putting on a big position ahead of potential risk events next week," said Tom Simons, money market economist at Jefferies in New York. He said the Treasury's projection for second-quarter borrowing "is just going to be astronomical." "There's a lot of uncertainty how Treasury is going to handle the financing issues because the total number they have to come up with is so big," said Simons. The market will also be focused on the April employment report due in a week, he said, adding: "We already know the data is going to be horrendous, but it's a question if the market is particularly interested in the details." The small movement in yields on Friday also suggested the bond market was not too concerned with the prospect the Trump Administration might cancel some debt held by China, as a diplomatic lever. A top administration economic adviser denied a Washington Post report the idea was discussed. In theory, the prospect of canceled debt would make U.S. Treasuries less safe and would drive up their yields, said Andrew Richman, director of fixed income strategies for Truist/SunTrust Advisory Services. “You would have less demand for that debt because it would get riskier,” he said. Instead, Richman said, investors seemed to be waiting for more definitive news on whether the pandemic’s economic impact would get better or worse. “We’re just going on the push-pull of CV news,” he said. Yields rose a bit earlier in the day after the Institute for Supply Management reported the nation's manufacturing activity plunged to an 11-year low in April as the coronavirus outbreak hurt supply chains. The index of national factory activity dropped to a reading of 41.5 last month from 49.1 in March. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was 1.4 basis points higher at 0.2018%. 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 43.30 basis points, less than a basis point lower than at Thursday's close. In repurchase agreement (repo) operations on Friday, no bids were submitted for an overnight operation, while all $21.4 billion of bids were accepted for a one-day repo. May 1 Friday 1:51PM New York / 1851 GMT Price Current Net Yield % Change (bps) Three-month bills 0.1075 0.1093 0.003 Six-month bills 0.1225 0.1243 0.010 Two-year note 99-217/256 0.2018 0.014 Three-year note 99-250/256 0.258 0.021 Five-year note 100-8/256 0.3687 0.024 Seven-year note 99-196/256 0.5342 0.017 10-year note 108-40/256 0.6386 0.014 30-year bond 117-196/256 1.2806 0.010 DOLLAR SWAP SPREADS Last (bps) Net Change (bps) U.S. 2-year dollar swap 12.75 0.00 spread U.S. 3-year dollar swap 7.50 -0.75 spread U.S. 5-year dollar swap 4.00 -1.00 spread U.S. 10-year dollar swap -0.50 -1.25 spread U.S. 30-year dollar swap -46.25 0.00 spread (Reporting by Karen Pierog in Chicago and Ross Kerber in Boston; Editing by Paul Simao and Dan Grebler)
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