Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Analysis: Will this time be different? Investors question the Treasury yield surge

EconomyNov 10, 2020 12:20PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: The United States Department of the Treasury is seen in Washington, D.C.

By Kate Duguid

NEW YORK (Reuters) - A spurt higher in Treasury yields has investors wondering whether this time, the momentum will keep going.

Investors rotated out of Treasuries, a popular safe-haven asset, and into sectors that could benefit from an economic upswing such as bank stocks and high-yield credit after Pfizer Inc (N:PFE) said on Monday its experimental COVID-19 vaccine was more than 90% effective. That sent the benchmark 10-year yield (US10YT=RR) to its highest since March, edging close to 1%, and the yield curve sharply steeper .

Previous moves higher in yields, however, have petered out as the Federal Reserve's near-zero interest rate policy has kept Treasury trading in a tight range.

Some investors say this time may be different.

"This was the 'vaccine' moment the rates market had waited for," said analysts at ING. The "big difference here from previous moves is that we won't need to take this back."

Higher Treasury yields can translate into higher borrowing costs and thus can slow growth. But the boost can also help savers and retirees who may rely on fixed income.

Andrew Brenner, head of international fixed income at NatAlliance, said if people actually start getting vaccinated and COVID-19 case counts drop, "I would expect the Fed to start thinking about changing their 2023 outlook to 2022 or maybe even the last half of 2021 to start raising rates."

The eurodollar curve from 2022-2024, a proxy for the market's expectation of rate hikes, surged on Monday, noted Michael Purves, head of Tallbacken Capital Advisors. That was striking, he said, as it suggested a vaccine "may in fact be much more important in disrupting the Fed's 'zero forever' policy than fiscal stimulus might ever be."

Still, there is skepticism that the move higher in yields would be sustained in the long run. There remains the possibility of gridlock in Washington that might hold up the passage of a stimulus bill. What's more, it isn't clear how long it might take for a vaccine to be approved by regulators and then rolled out.

"I still believe we are range-bound and will drift lower in yields over the next year," said Scott Burg, chief investment officer at hedge fund Deer Park Road.

That was seen to some extent in derivatives trading on Monday with bets on the TLT (O:TLT) exchange-traded fund, which tracks longer-dated Treasuries, according to Chris Murphy, co-head of derivative strategy at Susquehanna Investment Group.

There had been TLT bets "both ways" on Monday, he said, including a buyer of a call spread "looking for TLT higher and yields lower, saying that this is an over-reaction and things are not going to progress as quickly as the market is all of a sudden thinking."

That was a contrast to last week, when traders pulled out of bearish bets that long-dated Treasury yields would rise, when it seemed clear Joe Biden had won the presidency but that his Democratic party would face a divided Congress. That drove volume in put options on TLT to the highest since June 2019 on Wednesday, according to data from options analytics provider Trade Alert.

The prospect of gridlock in Washington is one argument for little movement on fiscal policy, and therefore, little movement in U.S. Treasury yields, said Jack Ablin, chief investment officer at Cresset Wealth Advisors.

While a divided Congress is still likely to pass a coronavirus stimulus bill, investors say the amount may be smaller than was expected if there had been a broad Democratic victory.

"The election result seems like it will take between $1 trillion and $1.5 trillion out of fiscal stimulus. So that's going to push pretty heavily on the Fed," said Ablin.

Purves said the risk to the market is if Congress coalesces around a lower fiscal package thinking that a vaccine is around the corner, but ultimately vaccine news disappoints. That would make the rotation trade into more economically sensitive assets more vulnerable.

"Let's see if we get follow-through on this rotation and Treasury sell-off," said Purves. "We have our doubts."

Analysis: Will this time be different? Investors question the Treasury yield surge

Related Articles

UK inflation rises to highest in nearly 30 years
UK inflation rises to highest in nearly 30 years By Reuters - Jan 19, 2022

By David Milliken and Andy Bruce LONDON (Reuters) -British consumer price inflation rose more than expected to 5.4% in December, its highest in almost 30 years, official data...

Goldman Sachs adds another layer of stress
Goldman Sachs adds another layer of stress By Reuters - Jan 19, 2022

A look at the day ahead from Julien Ponthus. For all the turmoil across financial markets yesterday, the Nasdaq creeping dangerously near correction territory and closing below a...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
VFor Vendetta
V4Vendetta Nov 11, 2020 3:22AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
premature vaccine news, premature "novice" investors acts... They abandoned safe heaven in order to jump into hospitality, flight operators and other currently very risky assets just to realize very soon that the companies and ultimately the economy is at least 3 to 6 months away from vaccine. However, within this time frame, many of those can got bankrupt. They buying news, speculators like. When i was selling upside and buying their safe heaven assets for cheap... No body doubt that at least one additional package is absolutely necessary and no doubt will arrive. The biggest question here is whether the package will still be 2T or increase under Biden's administration? Meanwhile, there is also time until january before the WH will be populated. uncertainty ? definitely! in my opinion, the uncertainty will only grow until administration swaps in january. Meanwhile, people does not have money without stimulus package and this fact will also affect economy to the worst. Good Luck everybody
Ciprian Gal
Ciprian Gal Nov 10, 2020 1:06PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Where others are doubtful, buy
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email