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Markets

Yields jump as stocks near highs ahead of record 10-year supply

  • The Russian news certainly spurred another 'risk on' session overnight.
  • "All these things are allowing this 'risk on' sentiment to continue," di Galoma said.
  • The yield curve between two-year and 10-year notes steepened five basis points to 49 basis points.
12 Aug 2020

NEW YORK: US Treasury yields jumped to one-month highs on Tuesday as stocks neared records, reducing demand for safe-haven debt, and before the Treasury will sell its largest-ever amount of 10-year notes on Wednesday.

Stocks gained after Russian President Vladimir Putin said on Tuesday that Russia had become the first country in the world to grant regulatory approval to a COVID-19 vaccine after less than two months of human testing.

"The Russian news certainly spurred another 'risk on' session overnight," said Tom di Galoma, managing director at Seaport Global Holdings in New York.

Expectations of further stimulus by the US government further boosted risk appetite.

"All these things are allowing this 'risk on' sentiment to continue," di Galoma said.

US President Donald Trump on Monday said he was considering cutting the federal capital gains tax and lowering income taxes for middle-income families to help the economy recover from the economic fallout of the coronavirus pandemic.

Trump on Saturday signed executive orders and a memorandum seeking to provide relief to workers, businesses and local governments, but he faces opposition to the moves.

Benchmark 10-year note yields jumped eight basis points to 0.655%, after earlier reaching 0.661%, the highest since July 13. They are up from a low of 0.504% on Thursday.

The yield curve between two-year and 10-year notes steepened five basis points to 49 basis points.

Yields also jumped before the Treasury will sell a record $38 billion in 10-year notes on Wednesday.

The Treasury last week increased auction sizes across the curve and said that it plans to continue to shift more of its funding to longer-dated debt in coming quarters as it finances measures to offset the impact of the epidemic.

A record $48 billion sale of three-year notes on Tuesday drew solid demand.

The Treasury will also sell $26 billion in 30-year bonds on Thursday.

Data on Tuesday showed that US producer prices increased by the most in more than 1-1/2 years in July, but the overall trend in producer inflation remained subdued amid signs the economy's recovery from the recession was faltering.