10-year U.S. Treasury yields hit 1% for the first time in more than 9 months

10-year U.S. Treasury yields hit 1% for the first time in more than nine months, with investors betting Democrats about to grab the Senate, improving Joe Biden’s prospects of pushing his agenda through in Congress.

The yield on the 10-year note rose 0.04 percentage point to 1% on Wednesday in Asia. Yields rise when the price of a bond falls.

Victories in both Georgia Senate second-round elections would give Democrats and Senators who meet with the party 50 seats in the upper house, which, along with the decisive vote held by the vice president, would put them in control. of the two chambers of Congress and the White House.

The rise in yields prolonged a five-month liquidation of US public debt which accelerated in early November following the breakthrough of the BioNTech / Pfizer Covid-19 vaccine.

$ 42 billion

US Stock Market Size

The pace picked up in December after Congress approved a $ 900 billion stimulus package after months of stalemate. Democrats have repeatedly called for more generous aid to individuals and direct support for state and local governments, while Republicans have called for spending cuts.

The possibility of further stimulus under a Biden administration has bolstered investor sentiment even as the United States faces a wave of coronavirus cases and lingering economic malaise before a vaccine is available for most Americans.

Fund managers have positioned themselves for an economic recovery later in 2021 that they believe will help rekindle inflationary pressures.

A market measure of inflation expectations over the next decade has risen accordingly. The 10-year break-even rate, which is derived from the prices of inflation-protected U.S. government securities, exceeded 2% this week – a level last reached in late 2018.

Low rates helped prop up valuations in the US stock market by $ 42 billion and a reversal could weigh on stock prices. Futures trading indicated a decline in the value of tech stocks – which were propelled by extremely low rates – when markets opened on Wednesday.

The yield on 10-year Treasuries fell below 1% for the first time in history in March amid a pandemic-induced market sell-off.

The Federal Reserve responded by lowering interest rates to zero and intervening heavily in short-term funding markets. He also pledged to buy an unlimited amount of US government debt and deployed 13 loan facilities to support debt markets, including those for junk bonds and municipal bonds.

These actions, coupled with the unprecedented economic contraction caused by coronavirus lockdowns, have suppressed yields and dramatically reduced the government’s borrowing costs even as it sold a record number of new Treasuries to fund government bonds. stimulus plans adopted by Congress.

Many strategists expect the benchmark Treasury yield to rise to 1.25% by next year, but it will likely struggle to trade above that level sustainably. They cite the Fed as a potential hurdle to significantly higher yields, as the central bank focuses on maintaining accommodative financial conditions to support the nascent economic recovery.