TREASURIES-Yields move slightly higher as stocks pare some losses

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NEW YORK, Oct 2 (Reuters) - U.S. Treasury yields rose modestly on Friday, following stocks, which pared some early losses on the news that President Donald Trump has contracted COVID-19 and that U.S. jobs growth slowed in September.

Risk assets recovered in mid-morning trade from session lows, tamping down prices on safe-haven assets like Treasury bonds after the White House tried to reassure Americans on Friday that Trump was still working from isolation. The White House’s bombshell announcement earlier in the day that the president had caught the coronavirus threw the administration and presidential election campaign into uncertainty.

But investor appetite for risk remained muted, with all three major U.S. stock indexes still red on the day, also influenced by the Labor Department’s report that U.S. job growth slowed more than expected in September and the ranks of the permanently unemployed swelled. That underscored an urgent need for additional fiscal stimulus as the COVID-19 pandemic drags on and threatens the economy’s recovery.

The benchmark 10-year yield was last up 1.5 basis points to 0.692%, steepening the yield curve modestly as the two-year yield remained anchored. The movement in the 10-year yield remained in line with recent trends. With the exception of Sept. 29, the 10-year yield has opened and closed with a 5-basis-point range of 0.65% and 0.7% for the past three weeks.

“I’m actually quite surprised by how muted the reaction has been in the Treasury market. Not just following the COVID news earlier this morning from the president as well as the modestly weaker jobs number. It is really hard to get the Treasury market to react to anything,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale.

The report on slowing jobs growth may ultimately push yields lower.

“What we’ve seen on the data front in the last few weeks is, after the V-shaped recovery in June, the data has mostly plateaued,” said Rajappa. “So if we do see evidence of a meaningful slowdown, there is a good chance we could see yields decline from here.”

But, she noted, heavy supply and the Federal Reserve’s unwillingness to move interest rates into negative territory will likely keep yields above the lows hit in August.

The two-year yield was last 0.2 basis point higher at 0.133%, while the 30-year yield was last up 2.1 basis points to 1.476%.

Reporting by Kate Duguid; Editing by Dan Grebler