Yields highest since March ahead of stimulus, supply

NEW YORK: Benchmark Treasury yields rose to 10-month highs on Monday as investors priced for higher government spending under the incoming Joe Biden administration and before the Treasury will sell new long-dated supply.

US President-elect Biden said on Friday that Americans need more economic relief from the coronavirus pandemic now and that he will deliver a plan costing "trillions" of dollars on Thursday. The proposal includes relief for state and local governments grappling with the pandemic, as well as new support for people who lost their jobs or cannot afford rent.

Biden also called for raising the minimum wage to $15, a campaign promise, and for sending out $2,000 in direct cash payments.

Expectations of a multitrillion-dollar stimulus plan and the belief that the Federal Reserve will not push back on rising interest rates and new Treasury supply this week are helping yields rise, said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

Benchmark 10-year notes rose as high as 1.134%, the highest since March 20. The yield curve between two-year and 10-year notes steepened to 99.7 basis points, the widest level since July 2017.

Shorter-dated yields are holding near record lows on expectations that the Fed will hold rates near zero for years to come.

However investors have begun pricing for the possibility of rate hikes in 2023, sooner than previously expected.

Eurodollar futures contracts maturing in September 2023 on Monday were pricing more than one rate hike by the Fed by then, compared with barely one increase last week.

The Treasury Department will sell a record $58 billion in three-year notes on Monday, the first sale of $120 billion in coupon-bearing supply this week.

The government will also sell $38 billion in 10-year notes on Tuesday and $24 billion in 30-year bonds on Wednesday.

While some investors may be a bit nervous after the 10-year broke above 1% last week, the auctions will likely be well absorbed and help nudge rates higher, said Goldberg. "We're of the view that you will probably still see some upside in rates in the near term," he added.

Breakeven rates on 10-year Treasury Inflation-Protected Securities are trading at 2.05%, after reaching 2.10% on Friday. They broke above 2% on Jan. 4 for the first time since November 2018.