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TREASURIESYields Dip, Curve Flattens in Light Trading

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NEW YORK, Dec 31 Reuters U.S. Treasury yields were lower on the last trading day of the year, pulling the yield curve flatter, as thin volume exaggerated market moves.

Longdated Treasury yields fell on Thursday morning, flattening the yield curve, despite an unexpected drop in unemployment claims for the second straight week.

Initial claims for state unemployment benefits slid to a seasonally adjusted 787,000 for the week ended Dec. 26, from 806,000 in the prior week, the Labor Department said on Thursday. But they remain elevated more than nine months into the health and economic crisis triggered by the coronavirus pandemic, signaling a long recovery for the U.S. job market.

The benchmark 10year yield fell 1 basis point to 0.917, pulling one measure of the yield curve the spread between the two and 10year yields down to 79 basis points, the lowest in a week. The yield on the 30year bond was last down 1.3 basis points at 1.649.

Though the drop in jobless claims is a positive sign for the U.S. labor economy, thin trading volume skewed the Treasury markets response to the data. With few people in the office, an early shutter of the Treasury market today, and some international markets already closed ahead of the holiday on Friday, yields were being directed by oneoff trades rather than broader trends.

Overnight Treasury volume was about 35 of average with some key markets shut, said Bill ODonnell, rates strategist at Citigroup.

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