The 10-year Treasury yield rose above one percent for the first time in nine months during overnight trading on Tuesday. It hasn’t done that since March, when the pandemic spurred concerns and send investments falling. The upswing came as investors kept a close eye on the Senatorial runoff races in Georgia. Many were cheering on a Democrat win, hoping that a Democrat-controlled Senate might better enable lawmakers to pass a larger stimulus package. In turn, a larger volume of government spending might make inflation higher and drive yields higher along with it.
Gregory Faranello, U.S. head of rates at AmeriVet Securities, said, “It’s almost like the market is just relieved we are getting to a conclusion and yields are forming a higher range. Investors are betting more deficits, more spending, and more Treasury issuance if Democrats gain control of the Senate. Now that the 10-year broke 1%, we are going to spend some time in the 0.75% to 1.25% range.”
Looking ahead to Wednesday morning, the 10-year rate traded at 1.057 percent, or ten basis points higher. The 30-year Treasury bond yield also rose 13 basis points more and stood at 1.835 percent. On Thursday, at the close of trading, the 10-year Treasury yield was 1.07 percent.
In March, the 10-year rate fell steeply to 0.318 percent, a record low. Safe assets were hard to identify amid the pandemic. But the fiscal stimulus that followed helped bond yields slowly rebound, albeit sluggishly. However, the uncertainties surrounding the coronavirus and the economy have led to a bumpy recovery.
Barclays’ Global Treasuries trading co-head, Kevin Walter, said, “On the equity side, stocks typically prefer a divided Congress and now need to price in a greater probability for higher corporate tax rates. Offsetting that is the more likey prospect for fiscal stimulus,” Walter said. “In the Treasury space, that increase in spending translates into more back-end supply and higher inflation, hence the steeper curve.”
Goldman Sachs believes that Congress will push through a third stimulus package, this one around $600 billion, with the Democrats controlling the Senate.