Bond Report: Treasury yields gain ground on fiscal relief hopes

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U.S. Treasury yields rose on early Monday’s trade as investors appeared to pin their hopes on a new fiscal stimulus deal before the presidential election.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 0.769% rose 3 basis points to 0.774%, while the 2-year note rate TMUBMUSD02Y, 0.153% was up 0.6 basis point to 0.151%. The 30-year bond yield TMUBMUSD30Y, 1.554% climbed 3.1 basis points to 1.561%. Bond prices move inversely to yields.

What’s driving Treasurys?

On the outlook for fiscal stimulus, House Speaker Nancy Pelosi said Tuesday was the deadline for any deal before the Nov. 3 presidential election. Analysts cited hopes for a new coronavirus aid relief package for the buoyant sentiment in risk assets at the start of the week.

Some also suggested the bond market was reacting more to polls showing Democratic candidate Joe Biden’s rising lead over President Donald Trump. The concern is a wide margin of victory for Biden could augur a flood of new debt issuance that could weigh on Treasury prices, forcing yields higher.

See: Here’s why the prospect of a Democratic clean sweep in November’s elections is rattling a sleepy U.S. bond market

U.S. stocks were poised to trade higher at the opening bell, weighing on demand for safe assets like government bonds.

China’s gross domestic product expanded by 4.9% in the third quarter from a year earlier. Though, the numbers fell short of analysts’ predictions, China’s rebound is outpacing many major economies that are still contending with the specter of COVID-19.

Investors hope China’s recovery could help drive global economic growth in the difficult months ahead.

What did market participants’ say?

“The election’s presumed impact ratchets interest rates higher with the election two weeks away. Financial headlines attribute this morning’s move to U.S. fiscal stimulus hopes because stocks have retraced Friday’s sharp decline into the close when Washington talks hit yet another impasse,” said Jim Vogel, an interest-rate strategist at FHN Financial.

“October interest rate patterns, though, actually follow Biden’s consistent lead in the polls and near-term supply variables in the high-grade bond markets more than they trace stimulus talks,” said Vogel.

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