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TREASURIES-Yields hit four-month highs on fiscal stimulus hopes

Credit: REUTERS/THOMAS WHITE

Benchmark U.S. Treasury yields rose to four-month highs on Thursday and the yield curve steepened on hopes that U.S. lawmakers are close to striking a deal on new fiscal stimulus.

By Karen Brettell

NEW YORK, Oct 22 (Reuters) - Benchmark U.S. Treasury yields rose to four-month highs on Thursday and the yield curve steepened on hopes that U.S. lawmakers are close to striking a deal on new fiscal stimulus.

U.S. House Speaker Nancy Pelosi said on Thursday negotiators were making progress in talks with the Trump administration for another round of financial aid amid the COVID-19 pandemic and that legislation could be hammered out "pretty soon."

Hopes of new fiscal spending has dominated trading this week, and sent yields higher as it appears that a near-term deal is more likely.

"It's headline driven at this point," said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.

Many investors are betting that new stimulus is likely after the Nov. 3 presidential election if lawmakers do not agree to it now, with Democrats likely to offer a larger package if they win a majority in the Senate.

Benchmark 10-year Treasury yields US10YT=RR rose as high as 0.853%, the highest since June 9. The yield curve between two-year and 10-year notes US2US10=TWEB steepened to 70 basis points, the widest spread since June 8.

New fiscal spending should improve the U.S. economic outlook and raises the prospect of higher inflation, which would send yields higher. A glut of Treasury supply to finance the spending could also weigh on the U.S. bond market.

Analysts caution that ongoing economic weakness and global demand for yield could limit any large increase in bond yields.

The Federal Reserve is also expected to shift more of its bond purchases to longer-dated debt if it sees yields rising faster than economic growth warrants.

Yields rose slightly on Thursday after U.S. data showed new claims for jobless benefits declined more than expected last week, though they remained extremely high.

The Treasury Department saw strong demand for a $17 billion in five-year Treasury Inflation-Protected Securities (TIPS) on Thursday.

It came after a solid auction of $22 billion in 20-year bonds on Wednesday.

October 22 Thursday 3:00PM New York / 1900 GMT

Price

US T BONDS DEC0 UScv1

172-12/32

-0-23/32

10YR TNotes DEC0 TYcv1

138-88/256

-0-60/256

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.09

0.0913

-0.005

Six-month bills US6MT=RR

0.11

0.1116

-0.005

Two-year note US2YT=RR

99-242/256

0.1533

0.004

Three-year note US3YT=RR

99-196/256

0.204

0.008

Five-year note US5YT=RR

99-102/256

0.3731

0.022

Seven-year note US7YT=RR

98-112/256

0.6053

0.025

10-year note US10YT=RR

97-236/256

0.8461

0.030

20-year bond US20YT=RR

94-240/256

1.419

0.032

30-year bond US30YT=RR

93-100/256

1.6568

0.028

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

8.25

0.00

U.S. 3-year dollar swap spread

7.50

0.00

U.S. 5-year dollar swap spread

6.75

-0.75

U.S. 10-year dollar swap spread

2.50

-0.25

U.S. 30-year dollar swap spread

-35.25

-0.25

(Editing by Bernadette Baum and Richard Chang)

((karen.brettell@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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