U.S. 10-year Treasury yield extends climb above 1% as markets eye fiscal stimulus prospects

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


U.S. Treasury yields rose slightly early Thursday’s trade as investors monitored the prospects of additional fiscal easing under the upcoming administration of President-elect Joe Biden.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
1.060%

rose 1.4 basis points to 1.056%, after hitting its highest level since March on Wednesday, while the 2-year note rate
TMUBMUSD02Y,
0.144%

edged 0.2 basis point lower to 0.143%. The 30-year bond yield
TMUBMUSD30Y,
1.838%

added 1.5 basis points to 1.836%.

What’s driving Treasurys?

Markets shrugged off riots in Washington D.C. that saw a mob force its way into the Capitol building on Wednesday, disrupting a Congressional debate on the confirmation of Biden as president from January 20. Lawmakers later returned to Capitol Hill to ratify the election results, certifying President-elect Joe Biden’s victory early Thursday.

Meanwhile, the win by Democrats on Wednesday in the runoff elections for two U.S. Senate seats, giving them control of Congress, raised the prospect of more generous fiscal stimulus measures and the issuance of more government debt.

Extra fiscal stimulus to boost the economic recovery from the coronavirus pandemic may result in inflation rising and holders of Treasury inflation-protected securities now anticipate growth in consumer prices to average 2.08% over the next 10 years, above the central bank’s 2% target.

See: Why the stock market rallied even as a violent mob stormed the Capitol

Traders will take a look at some U.S. economic data Thursday morning also. Initial weekly jobless claims and November trade deficit numbers are due at 8:30 a.m. ET, followed by the Institute for Supply Management’s gauge of service sector activity for December at 10 a.m.

What did market participants say?

” We are more negative on our outlook for Treasury yields now that the Presidential election has been certified. We believe inflation is building as break-even [rates] have moved substantially higher over the last few month and at this point cannot be ignored,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, referring to the rise in bond market inflation expectations.



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