Treasury yields climb as market braces for Georgia Senate runoff election outcome

What could rattle markets in 2021, even as vaccines are rolling out

U.S. Treasury yields edged higher in early Tuesday trade before the runoff elections for Georgia’s two U.S. Senate seats which could decide the balance of power in Washington and President-elect Biden’s future legislative agenda.

What are Treasurys doing?

The 10-year Treasury note yield

rose 2 basis points to 0.937%, while the 2-year note rate

added 0.2 basis point to 0.117%. The 30-year bond yield

increased by 2.5 basis points to 1.681%.

What’s driving Treasurys?

All eyes were on the runoff elections for two U.S. Senate seats in Georgia. With betting odds and polling data indicating a tight race, investors were unsure whether they would see a return to the status quo of a divided Congress or a slim Democratic majority.

The latter possibility has added to bearish pressure on Treasurys as analysts say inflation expectations have risen in response as Congress may be more inclined to pass additional stimulus spending if controlled by Democratic lawmakers.

See: Biden says Democratic wins in Georgia’s runoffs will lead to $2,000 stimulus checks

On the margins, investors will also pay attention to speeches by Cleveland Fed President Loretta Mester and Chicago Fed President Charles Evans on Tuesday.

The U.S. Institute for Supply Management’s manufacturing gauge due at 10 a.m. ET could offer another data point on whether the COVID-19 winter resurgence was taking a toll on the U.S. economy.

What did market participants say?

“If granted greater power by a double Democratic victory today, the likelihood of the Biden administration enacting pro-growth policies, be it additional funding to vaccination programmes, fiscal support to households, and government investment (for instance in renewable energy), will rise,” said Padhraic Garvey, regional head of research for ING, in a note.

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