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The contests will determine the control of the Senate for the next two years. Many believe that a Democratic Senate can make it easier for lawmakers to push through a larger stimulus. More government spending could lead to higher inflation, which would increase yields.
“It’s almost as if the market is just relieved that we’re coming to a conclusion and that the returns are a higher volume. Investors are betting more deficits, more spending and more spending as the Democrats gain control of the Senate,” Gregory said Faranello, head of the US, said rates at AmeriVet Securities. “Now that the ten years have broken 1%, we are going to spend some time in the range of 1% to 1.20%.”
Earlier this week, the break-even rate for ten-year inflation expectations hit 2% for the first time in more than two years.
It was a sluggish setback for the ten-year rate, which tumbled to a record low of 0.318% in March amid a historic flight to safe assets in the depths of the pandemic. With the unprecedented monetary and fiscal stimulus, bond yields gradually rose higher, but the persistent Covid uncertainty and unequal economic data kept the recovery of rates bumpy.
Earlier this week, bond yields were boosted by stronger-than-expected economic data.
An index of U.S. manufacturing activity rose to a reading of 60.7 last month, according to the Institute for Supply Management, the highest level since August 2018. Economists surveyed by Dow Jones predicted that the index would rise in December to 57.0 would decrease.
Tom Essaye, founder of Sevens Report, said the return on returns should not put pressure on risk assets in the short term.
“It would not be a direct headwind for equities, but it would reinforce that rising returns are a theme we need to keep an eye on in 2021,” Essaye said Tuesday.
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