Treasury Yields Touch Multi-Month Highs -- Update
By Sam Goldfarb
U.S. government-bond yields hit their highest levels in more
than four months, following signs of progress in Washington toward
a deal on a roughly $2 trillion coronavirus relief package.
The yield on the benchmark 10-year U.S. Treasury note settled at
0.815%, according to Tradeweb, compared with 0.796% Tuesday. That
marked its highest close since early June, just before a summer
surge of coronavirus cases.
Yields, which rise when bond prices fall, climbed overnight
after both House Speaker Nancy Pelosi and White House chief of
staff Mark Meadows suggested talks between the White House and
Democrats had been productive.
Those comments kept hopes alive that an agreement could be
reached by the end of the week. Signs of continued resistance from
Senate Republicans tempered optimism, as did comments from Mrs.
Pelosi and others acknowledging time was running out to pass a bill
before next month's election. But investors remained hesitant to
buy Treasurys, aware that next month's elections could also
potentially pave the way for a large fiscal package.
"It feels like 30% of the market is convinced that we're going
to have higher interest rates after the election," said Jim Vogel,
interest-rates strategist at FHN Financial. Meanwhile, he said,
"the market has never given up the idea that stimulus was still
possible" ahead of the vote, meaning "any announcement from any
party that there are still talks keeps rates elevated."
More government spending tends to push up Treasury yields for
two reasons: first, by increasing the supply of outstanding bonds
as the government ramps up borrowing and, second, by potentially
boosting economic growth and inflation, which makes bonds less
Treasury yields have climbed in recent weeks as renewed stimulus
talks have dovetailed with improving odds of a so-called blue wave,
in which Democrats could take the White House and win majorities in
both chambers of Congress. Under that scenario, many investors
anticipate that Democrats would pursue not just additional
coronavirus aid but also large-scale infrastructure spending.
Yet powerful forces continue to suppress Treasurys yields,
keeping them near historic lows.
Though the economy has rebounded from its sharp contraction
earlier in the year, the path of its recovery remains uncertain in
the midst of the continuing coronavirus pandemic.
Even when the economy has fully recovered, many investors
anticipate sluggish growth and inflation for years to come based on
their experience from the decade preceding the health crisis. That
has led to bets that the Federal Reserve will keep short-term
interest rates near zero for a prolonged period.
Write to Sam Goldfarb at email@example.com
(END) Dow Jones Newswires
October 21, 2020 16:17 ET (20:17 GMT)
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