Longer-term yields rise as prospect for more stimulus looms

CHICAGO: US Treasury yields on the longer end of the curve continued their march higher on Thursday as the market factored in a Democrat-controlled US government and the prospect for further stimulus spending.

The benchmark 10-year yield, which shot over the 1% level on Wednesday for the first time since March, was last up 3.7 basis points at 1.0795%.

A big move higher in yields on Wednesday, sparked by Georgia runoff elections that gave Democrats control of the US Senate, was later tempered when supporters of Republican President Donald Trump stormed the US Capitol.

After the building was cleared, lawmakers certified Democrat Joe Biden's presidential victory early on Thursday.

The prospect that Democrats will push for significant stimulus to aid the coronavirus-battered economy added fuel to an ongoing "normalization in the rate market to the extent possible given that the front end is anchored by (US Federal Reserve) policy," according to Bill Merz, head of fixed income research at US Bank Wealth Management in Minneapolis.

With Democrats already controlling the US House of Representatives, "the Georgia Senate elections just added a tailwind to existing trends of reflation and upward pressure on Treasury yields," he said.

Yields also got a lift after data showed US services industry activity accelerated last month with the Institute for Supply Management's non-manufacturing activity index climbing to a 57.2 reading last month from 55.9 in November.

Ahead of Friday's December employment report, the US Labor Department reported first-time claims for jobless benefits unexpectedly dipped to a seasonally adjusted 787,000 for the week ended Jan. 2, from 790,000 in the prior week.

Merz said regardless of whether the monthly report is positive or negative, meaningful changes to Fed policy are not expected in the near term.

"They're going to keep rates low for years and they'll keep buying assets at the current pace all of 2021 even if the recovery speeds up a bit," he said.

Philadelphia Federal Reserve Bank President Patrick Harker was the latest Fed official to weigh in on bond purchases, saying on Thursday the central bank is unlikely to taper them until the end of this year at the earliest.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was last unchanged at 0.1448%.

A closely watched part of the yield curve, which measures the gap between yields on two- and 10-year Treasury notes , remained at its widest level since 2017. It was last up 3.46 basis points at 93.3 basis points.