By Sunny Oh
U.S. Treasury yields climbed Wednesday, breathing life back into the placid bond market as expectations for additional fiscal stimulus took hold.
What are Treasurys doing?
The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -5.27% rose 3.3 basis points to 0.677%, its largest such move in more than three weeks. The benchmark rate was down 1.8 basis points in September and up 2.4 basis points in the third-quarter, reflecting the lack of bond market volatility over the past few months.
The 2-year note yield /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y +7.19% was steady at 0.123%, declining 0.8 basis point for the month and 2.9 basis points in the third-quarter. The 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y -2.55% gained 4.9 basis points to 1.453%, keeping it unchanged for this month and contributing to a 4.3 basis point gain between July and September. Bond prices move inversely to yields.
What’s driving Treasurys?
Expectations for progress on a new fiscal stimulus bill gave a jolt to the bond-market, pushing yields higher. In the past few weeks and months, Treasurys have traded in a tight range due to the Federal Reserve’s pledge to keep interest rates at zero for a long time.
Treasury Secretary Steven Mnuchin said he was hopeful on the prospects of a deal . He later talked to House Speaker Nancy Pelosi to discuss the bill. But Senate Majority Leader Mitch McConnell was adamant t hat Democrats and Republicans were still far away from agreeing on a stimulus package.
Most of the economic data on Wednesday underlined the continuing U.S. economic recovery, with pockets of strength appearing in areas such as housing.
U.S. private-sector employment rose by 749,000 jobs, its highest in three months, Automatic Data Processing Inc. reported Wednesday. This comes ahead of the more important official employment report from the Labor Department for September on Friday.
The decline in the U.S. second quarter gross domestic product was revised up to -31.4% from -31.7% on an annualized basis. Meanwhile, the Chicago purchasing manager index surged to 62.4 in September from 51.2.
Pending home sales for August rose 8.8% in August as compared with July, hitting a new all-time high.
As for the U.S. presidential race, it’s unclear how much impact the fractious debate on Tuesday had on bond-market swings.
Some analysts did suggest the rise in yields on Wednesday may have reflected increased expectations of former Vice President Biden’s victory following the debate. If elected, investors expect Biden to preside over increased fiscal deficits to finance expansionary spending.
But others argued the debate was inconclusive and did not give much clarity on the state of the presidential race.
What did market participants’ say?
“As far as markets are concerned, we are seeing a strong rally in equities, and a sell-off in bonds. With a blinkered view, this may be ascribed to an edge to Biden (for holding his own), with an increased chance of blue victory and more deficit financed stimulus,” said Greg Staples, head of fixed income for DWS.
“However, we did see some strong data this morning, and with quarter-end today, it can be tough to separate the political, the economic, the flows, and the noise,” he said.