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The games determine the Senate’s control for the next two years. Many believe a Democrat-controlled senate could make it easier for lawmakers to pass a larger stimulus. More government spending could lead to higher inflation, which would increase yields.
“It’s almost as if the market is just relieved that we come to a conclusion and the returns are in a higher range. Investors are betting on more deficits, more spending and more treasury issuance as Democrats take control of the Senate,” said Gregory Faranello. head of the USA. rates at AmeriVet Securities. “With the 10-year-old breaking 1%, we’re going to spend some time in the 1% to 1.20% range.”
Earlier this week, the break-even rate for the 10-year inflation expectations reached 2% for the first time in more than two years.
It has been a slow recovery for the 10-year yield, which plunged to a low of 0.318% in March amid a historic flight to safe assets in the depths of the pandemic. Unprecedented monetary and fiscal stimulus has pushed bond yields up gradually, but ongoing uncertainty from Covid and uneven economic data has left interest yields bumpy.
Earlier this week, bond yields got a boost from stronger-than-expected economic data.
An index of US manufacturing activity rebounded to 60.7 last month, its highest level since August 2018, according to the Institute for Supply Management. Economists polled by Dow Jones predicted the index would fall to 57.0 in December.
Tom Essaye, founder of Sevens Report, said the burst in short-term yields should not put pressure on risky assets.
“That wouldn’t be a direct headwind for equities, but it would reinforce the fact that rising yields are a theme we need to keep a close eye on in 2021,” Essaye said on Tuesday.
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