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Markets

US long-dated yields climb to five-week peaks on stimulus hopes

  • Pelosi, Mnuchin to continue stimulus talks on Tuesday.
  • Trump to leave hospital on Monday after COVID diagnosis.
  • US 10, 20, 30-year yields hit five-week high.
  • U.S yield curve steepens, spread widest since late August.
06 Oct 2020

NEW YORK: US Treasury yields rose on Monday, as expectations grew that a stimulus package to combat the economic devastation caused by the pandemic could be completed before the November presidential election.

Higher-than-expected U.S services sector data also helped boost yields, as did indications that President Donald Trump will leave the hospital on Monday after he tested positive for COVID last Friday.

US 10-year, 20-year, and 30-year yields rose to five-week highs, while the yield curve steepened to its widest since late August.

In line with the rise in yields, shares on Wall Street were higher on the day, while the safe-haven dollar and yen were weakened, as investors eyed the prospects for the US stimulus deal.

US House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke by phone for about an hour on Monday on coronavirus economic relief and were preparing to talk again Tuesday, continuing their recent flurry of activity working towards a deal on legislation.

White House Chief of Staff Mark Meadows said on Monday there is still potential to reach agreement with US lawmakers on more economic relief during the coronavirus pandemic, and Trump is committed to getting the deal done.

"It looks like they're making progress on stimulus talks," said Stan Shipley, fixed-income strategist, at Evercore ISI in New York. "It's fifty-fifty whether they can pass it before the election, but if they don't make it before, they're doing it after the election. So it's coming."

In addition, Trump said on Twitter he will leave the US military hospital later on Monday, adding that he felt "really good." Some analysts said that helped sentiment a bit.

In afternoon trading, US 10-year yields rose to 0.761%, from 0.694% late on Friday, after earlier rising to 0.762%, the highest level since late August.

Yields also held gains after data showed US services activity picked up in September, pulling above a level that prevailed before the COVID-19 pandemic struck the nation, amid increases in new orders and employment. The Institute for Supply Management (ISM) said its non-manufacturing activity index rose to 57.8 last month from 56.9 in August. That put the index just above its 57.3 level in February.

"I think the economic data, even with the disappointing payrolls last Friday is coming in pretty good here," said Evercore's Shipley.

"Inflation expectations are climbing. We're getting a lot more growth than people expect and higher inflation," he added.

Yields on US 30-year bonds were at 1.567%, up from 1.48% on Friday. Earlier, 30-year yields climbed to a five-week peak of 1.569%.

On the short end of the curve, US 2-year yields rose to 0.146%, from 0.133%.

The yield curve steepened on Monday as well, with the spread between the 10-year and two-year widening to as much as 61.7 basis points, the widest spread in five weeks.