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Treasuries Yields Pop Higher on Chances for Biden Win, Stimulus

EconomyOct 05, 2020 11:45AM ET
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© Reuters. Treasuries Yields Pop Higher on Chances for Biden Win, Stimulus

(Bloomberg) -- Long-end Treasury rates surged Monday amid optimism that U.S. President Donald Trumpmight soon leave hospital, while his coronavirus diagnosis supported the prospects both for fiscal stimulus and an easier election win by his Democratic election opponent Joe Biden.

The yield curve steepened as the 30-year rate advanced as much as 7 basis points to 1.56%, the highest level since Aug. 28, driving the widely watch 5- to 30-year spread to a peak of 124 basis points.

A clear and undisputed winner of the Nov. 3 vote had been one of the most underappreciated risks in financial markets prior to Trump’s diagnosis. Biden has extended his advantage in opinion polls in recent days, with the RealClearPolitics average putting him more than 8 percentage points ahead of the incumbent.

In addition to shifting the election landscape, Trump’s illness may also boost the chances of a nearer-term stimulus deal in Washington, which would have a buoyant affect on Treasury rates. Supply could also add pressure, with reopening sales for both 10- and 30-year debt set to take place this week. Data released by the Commodity Futures Trading Commission last week showed that speculators were already becoming more bearish across long-end Treasuries.

The 10-year yield rose by as much as 5 basis points to around 0.75%, a level that was cited by BMO strategists Ian Lyngen and Jon Hill in a Monday note as “the next line in the sand toward higher yields.”

“A breach of this key support has only occurred once since June and it presents an obvious hurdle toward a repricing that has any probability of being sustained,” they wrote. “Our biggest concern isn’t the absence of fundamental backing for moderately higher rates; rather it’s the extent to which risk assets can weather an attempt to move into an environment with 10-year yields between 80-100 bp.”

©2020 Bloomberg L.P.

 

Treasuries Yields Pop Higher on Chances for Biden Win, Stimulus
 

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Comments (1)
Benson Njonjo Ndehi
Benson Njonjo Ndehi Oct 05, 2020 12:21PM ET
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Great news for stocks if they can tolerate the higher bond yields.
 
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