TREASURIES-Yields tumble as new virus variant spurs hunt for safe havens

(Adds quote, updates trading throughout)

By David Randall

NEW YORK, Nov 26 (Reuters) - U.S. Treasury yields posted their sharpest drop since the pandemic began Friday as investors rushed toward safe haven assets following the emergence of a new coronavirus variant in South Africa.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 14.2 basis points at 0.502, the sharpest drop since March 2020.

The yield on 10-year Treasury notes was down 14.9 basis points at 1.495%, the largest drop since February of this year. It last traded at these levels in early November.

"The economic recovery has been quite impressive and the one thing that could knock it over completely would be a more dangerous variant. Time will tell how worried we should be, but investors are selling in front of potential bad news," said Ryan Detrick, chief market strategist for LPL Financial.

Yields had been rising throughout the week following President Joseph Biden's announcement Monday that he would renominate Jerome Powell to a second term at the helm of the Federal Reserve. That, along with signs of strength in the U.S. economy, had pressed investors into taking bets that the Fed would move more aggressively to fight inflation.

"Inflation is rising, and COVID news are getting worrisome. The problem is that they can't use the same tools to fight back inflation and the economic slowdown. And the choice will be difficult," said Ipek Ozkardeskaya, a senior analyst at Swissquote.

European stocks were set for their worst day in more than a year as countries in Europe tightened travel controls in hopes of containing the new variant.

In the United States, the blue-chip Dow Jones Industrial Average fell more than 2%, while the Russell 2000 index of smaller companies tumbled more than 3.6%.

The yield curve steepened, with spreads between five- and 30-year Treasuries rising back to their levels before the news of Powell's reappointment on Monday.

November 26 Friday 10:52AM New York / 1552 GMT

Price Current Net

Yield % Change

(bps)

Three-month bills 0.0525 0.0532 -0.008

Six-month bills 0.0875 0.0888 -0.010

Two-year note 99-253/256 0.5059 -0.138

Three-year note 99-216/256 0.8035 -0.160

Five-year note 100-92/256 1.1758 -0.168

Seven-year note 100-152/256 1.4106 -0.168

10-year note 98-228/256 1.4953 -0.149

20-year bond 101-128/256 1.9092 -0.125

30-year bond 100-144/256 1.8504 -0.121

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap 22.00 -1.25

spread

U.S. 3-year dollar swap 21.00 -1.25

spread

U.S. 5-year dollar swap 10.25 0.00

spread

U.S. 10-year dollar swap 4.25 -0.75

spread

U.S. 30-year dollar swap -18.00 -0.75

spread

(Reporting by David Randall; Editing by Kirsten Donovan and David Clarke)

((David.Randall@thomsonreuters.com; 646-223-6607; Reuters Messaging: david.randall.thomsonreuters.com@reuters.net))