U.S. ten-year treasury yields hit 1 percent for the first time in more than nine months when investors bet the Democrats were ready to capture the Senate, pushing Joe Biden’s prospects to push his agenda through Congress , has improved.
The yield on the 10-year note rose by 0.04 percentage points to 1 percent in Asia on Wednesday. The yield increases when the price of a mortgage falls.
Victories in the two Senate elections in Georgia would give Democrats and senators who agree with the party 50 seats in the upper chamber, which, along with the intermittent vote held by the vice president, would put them in charge of both houses of Congress and the White House.
The back-up in yields extended a five-month sell-off of U.S. sovereign debt, which accelerated in early November with the breakthrough of BioNTech / Pfizer Covid-19.
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US Stock Market Size
The pace accelerated in December after Congress agreed to a $ 900 billion stimulus program after months of stalemate. Democrats have repeatedly called for greater help to individuals and direct support to state and local governments, while Republicans are calling for less spending.
The possibility of additional stimulus under a Biden government has exacerbated investor sentiment, even as the U.S. faced a spate of coronavirus cases and continued economic ills before a vaccine became available to most Americans.
Fund managers believe they will have an economic revival later in 2021, which they say will help rekindle inflationary pressures.
One market benchmark for inflation expectations over the next decade has risen accordingly. The ten-year break-even rate, derived from the prices of US inflation-protected government bonds, exceeded 2 percent this week – a level reached in late 2018.
Low rates have helped support rising US $ 42-ton stock valuations, and a reversal could weigh on stock prices. Futures trading showed a decline in the value of technology stocks – driven by lower rates – when the markets opened on Wednesday.
Yields on the 10-year treasury note fell below 1 percent for the first time in history amid pandemic-induced market sales in March.
The Federal Reserve responded by lowering interest rates to zero and intervening strongly in short-term financing markets. The company also promised to buy an unlimited amount of US government debt and run 13 lending facilities to support debt markets, including those for junk bonds and municipal bonds.
These actions, coupled with the unprecedented economic downturn caused by the coronavirus closures, have suppressed yields and drastically reduced government borrowing costs, even as it has sold a record amount of new treasury to fund congressional stimulus packages .
Many strategists predict that the benchmark Treasury’s yields will rise to 1.25 percent by next year, but it is likely to struggle to trade above the sustainable level. They cite the Fed as a potential obstacle to dramatically higher returns, given the central bank’s focus on keeping financial conditions accommodating to support the emerging economic recovery.