By Julia-Ambra Verlaine

U.S. government yields climbed Friday, lifted toward monthly gains by expectations that government spending will boom after the election.

The yield on the 10-year U.S. Treasury, a benchmark for borrowing costs on everything from mortgages to student debt, traded at a recent 0.853%, according to Tradeweb, up from 0.834% on Thursday.

Yields, which rise as bond prices fall, have increased in recent sessions, even as stocks have posted sharp declines. Some investors said expectations that post-election stimulus will spur growth and inflation, along with greater government borrowing, have outweighed haven buying.

"Investors will demand higher rates to absorb the supply of debt if the U.S. goes on a massive fiscal expansionary program," said Michael de Pass, global head of U.S. Treasury trading at Citadel Securities.

Many now expect Democratic control of the White House and Congress, which could result in greater spending to help businesses and local governments weather the pandemic. The U.S. Treasury has issued substantial amounts of bonds in recent years to fund everything from tax cuts to pandemic relief efforts. Many expect the Treasury will continue to raise auction sizes next month during its quarterly refunding announcement.

Expectations that the Federal Reserve will hold interest rates low for years to help boost the economy, along with the central bank's bond purchases, have helped keep Treasurys trading in a narrow range for months. A Democratic sweep could upend that range and send longer-term yields back above 1%, many said.

"The general consensus is that a Democratic sweep will be negative for Treasuries given the likelihood of considerable, debt-financed stimulus, " said Russ Koesterich, a portfolio manager at the BlackRock Global Allocation Fund.

Data on Friday pointed to growing strength in household spending on goods and services, with the Commerce Department saying personal-consumption expenditures posted a fifth straight monthly gain.

Another reason analysts said bond prices have fallen alongside stocks: Hedge funds are looking to rotate into cash, cutting positions ahead of the U.S. election to avoid price swings. U.S. stocks fell Friday with the Dow Jones Industrial Average on track to close out its worst month since March. With less than a week to go until the U.S. elections, increasing coronavirus infections across the globe and looming shutdowns that could dampen the economy, some investors said they are pressing the pause button.

"Clarity is just around the corner, but for now investors don't want to do anything heroic," said Adam Crisafulli, founder of market intelligence firm Vital Knowledge.

(END) Dow Jones Newswires

October 30, 2020 14:52 ET (18:52 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.