U.S. Bond Yields Climb on Post-Election Outlook
By Julia-Ambra Verlaine
Expectations for a postelection surge in government spending
powered the yield on the benchmark 10-year Treasury note to its
biggest monthly gain in two years on Friday.
The 10-year yield, a benchmark for borrowing costs on everything
from mortgages to student loans, settled at 0.858%, notching its
biggest monthly climb since Sept. 2018, according to Tradeweb. Some
investors said expectations that postelection economic stimulus
will spur growth and inflation, along with greater government
borrowing, have spurred the move.
Many are now betting on 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 plans to issue trillions of dollars of securities in
coming years to fund everything from tax cuts to economic relief
efforts, and analysts said it would likely continue raising the
sizes of its bond auctions next month during its quarterly
Those wagers have outweighed investors' tendency to shelter in
the relative safety of government debt during stocks' recent fall.
The S&P 500 posted its worst week since March on Friday, even
as the 10-year yield, which rises when bond prices fall, notched a
second consecutive weekly gain. It was just the 17th time since
1962 that the 10-year yield increased for the week while the
S&P 500 declined, according to Bespoke Investment Group.
"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
Many now anticipate 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 the 10-year yield back above 1%, many said.
"The general consensus is that a Democratic sweep will be
negative for Treasurys 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
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 damp 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.
Write to Julia-Ambra Verlaine at Julia.Verlaine@wsj.com
(END) Dow Jones Newswires
October 30, 2020 17:21 ET (21:21 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.