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Markets

Yields highest since March before 10-year auction

  • Investors are watching to see if the recent rise in yields will lure buyers to today's $38 billion sale of 10-year notes.
  • The Georgia Senate run-off elections really changed the landscape for the outlook pretty significantly as there is now potentially very significant additional stimulus.
12 Jan 2021

NEW YORK: Benchmark Treasury yields reached their highest levels since March on Tuesday before the Treasury Department will sell new 10-year notes and as traders waited on details of new US fiscal stimulus.

Investors are watching to see if the recent rise in yields will lure buyers to today's $38 billion sale of 10-year notes.

Yields have jumped on expectations that new fiscal stimulus will boost economic growth and also increase Treasury supply, after Democrats last week won control of the Senate.

"The Georgia Senate run-off elections really changed the landscape for the outlook pretty significantly as there is now potentially very significant additional stimulus," said Tom Simons, money market economist at Jefferies in New York.

President-elect Joe Biden said on Friday 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, and new support for people who lost their jobs or cannot afford rent. Biden also called for raising the minimum wage to $15 and sending out $2,000 in direct cash payments.

The 10-year auction is adding more pressure on prices, too, said Simons. After the auction the market direction may change as bears come in to cover their shorts, Simons added.

The yield on benchmark 10-year notes reached 1.177%, the highest since March 20. The yield curve between two-year and 10-year notes steepened to 102.4 basis points, the widest gap since May 2017.

Thirty-year bond yields reached 1.906%, also the highest since March 20. The government will sell $24 billion in 30-year bonds on Wednesday.

Five-year note yields jumped to 0.528%, the highest since March 27, as investors prepared for the prospect that the Fed could begin raising rates as soon as 2023. That would be earlier than previously expected.