10-year Treasury yield rises to 1% for the first time since March amid Georgia runoff elections

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The competitions will determine the control of the Senate for the next two years. Many believe that a Democrat-controlled Senate could help lawmakers more easily push for a bigger stimulus. An increase in government spending could lead to higher inflation, which would lead to higher yields.
“It’s almost like the market is just relieved that we come to a conclusion and the returns form a higher range. Investors are betting more deficits, more spending and more treasury issues if Democrats take control of the Senate, ”said Gregory Faranello, head of the United States. rate at AmeriVet Securities. “Now that the 10-year has broken 1%, we’re going to spend some time in the 1% to 1.20% range. ”

Earlier this week, the breakeven 10-year inflation expectation rate hit 2% for the first time in more than two years.

There was a slow rebound for the 10-year rate, which fell to a record low of 0.318% in March amid a historic flight to safe assets amid the pandemic. With the unprecedented monetary and fiscal stimulus, bond yields gradually increased, but continued uncertainty from Covid and patchy economic data kept the rate recovery volatile.

Earlier this week, bond yields were boosted by stronger-than-expected economic data.

An index of U.S. manufacturing activity rebounded to 60.7 last month, the highest level since August 2018, according to the Institute for Supply Management. Economists polled by Dow Jones had forecast the index to drop to 57.0 in December.

Tom Essaye, founder of Sevens Report, said the break in yields should not put pressure on risky assets in the short term.

“It wouldn’t be a direct headwind on equities, but it would reinforce the fact that rising yields is a theme we need to watch closely in 2021,” Essaye said on Tuesday.

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