Yields rise on stimulus, vaccine hopes for economy

Longer-term US Treasury yields rose Wednesday on hopes of more domestic fiscal stimulus and that vaccines would spark an economic recovery.

The benchmark 10-year yield was up 1.5 basis points at 0.9278% in afternoon trading, off its high of 0.959% for the day as major equity market indexes eased.

The moves reflected hopes on several fronts including that vaccines would start to control the COVID-19 pandemic and that lawmakers in Washington would pass additional stimulus measures, said Cantor Fitzgerald Treasury analyst Justin Lederer.

US Senate Majority Leader Mitch McConnell said on Wednesday that lawmakers were still striving for agreement on COVID-19 aid, as a bipartisan group released details of their proposal and the US House of Representatives prepared to vote on a one-week funding bill to provide more time for a deal.

The 10-year note's yield remained below the 1% level it last saw on March 20, and close to where it finished on Monday.

Investors seem to be waiting for stronger signals on the direction of policy, Lederer said, which may not come until elections in Georgia on January 5 decide control of the U.S Senate.

"We're just sitting range-bound here," Lederer said.

Pfizer Inc moved closer to getting its COVID-19 vaccine approved for emergency use on Tuesday, one factor driving major US stock indexes to open at record highs on Wednesday before easing.

A $38 billion sale of 10-year notes by the US Treasury on Wednesday afternoon was "a touch weak," according to a note to clients from DRW Trading Market Strategist Lou Brien, citing a below-average bid-to-cover ratio of 2.33.

Dealers accounted for 23% of competitive bids accepted, compared with 26.4% on average, according to BMO Capital Markets.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at 78 basis points, about 2 basis points wider than Tuesday's close.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was unchanged at 0.1508% in afternoon trading.