Yield curve steepens on Washington spending plans, jobs data

Longer-term US Treasury yields were higher on Thursday as investors positioned for a large pandemic relief package from Washington and a stabilizing US labor market.

The benchmark 10-year yield was up 1.5 basis points in morning trading at 1.1461% and at one point reached 1.16%, its highest since Jan. 12.

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 103 basis points, about 1.5 basis points higher than Wednesday's close. Earlier it reached 104 basis points, the most since May 2017.

Tom Simons, money market economist for Jefferies LLC, said the trading reflected a stronger-than-expected jobs report and expectations that congressional Democrats would pass a $1.9 trillion COVID-19 relief package without Republican support.

Both factors pointed to improving economic growth, which makes ultra-safe Treasuries less attractive to investors.

"There are some better expectations for the future that are settling in here," Simons said.

Inflationary pressures also seemed to be growing, he said, although inflation will be tricky to measure because springtime price comparisons will be with data taken during 2020's economic shutdowns in many areas.

"There's still an argument that inflation will remain pretty firm for the next couple of months," Simons said.

The ADP National Employment Report on Wednesday showed private payrolls increased by 174,000 jobs last month, more than expected.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down less than a basis point at 0.1152% in morning trading.