Bond Report: U.S. 10-year Treasury yield rises above 1% for first time since March with Democrats set to secure Senate

U.S. Treasury yields jump on Wednesday after Democrats appeared on track to win both Senate seats in Georgia and thus control of Congress, an outcome that would give the Biden administration more room to enact his policy agenda. Read More...

U.S. Treasury yields jumped on Wednesday after early voting indicated Democrats were on track to win both Senate seats in Georgia and thus control of Congress, an outcome that would give the Biden administration more room to enact his policy agenda.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 1.036% was at a March high of 1.041%, 8.6 basis points higher than in the previous day. The 2-year note rate TMUBMUSD02Y, 0.148% edged 2.2 basis points up to 0.143%, while the 30-year bond yield TMUBMUSD30Y, 1.812% climbed 11.4 basis points to 1.819%, more than an eight month high.

What’s driving Treasurys?

Preliminary voting results show Raphael Warnock won one of two Senate runoffs in Georgia early Wednesday, according to the Associated Press, bringing Democrats a seat closer to a Senate majority.

Also with 98% of the expected vote total reported, Democratic challenger Jon Ossoff was leading Republican Sen. David Perdue by just 0.4 percentage point.

With control of the Senate in sight, Democratic lawmakers may now have more scope to pass more aggressive fiscal measures that could weigh on the bond market through increased debt issuance and higher inflation expectations, according to analysts.

Indeed, the 10-year note broke through the key 1% level that has contained the benchmark maturity since March.

Read: U.S. bond market could face ‘taper tantrum’ risk after Georgia Senate runoffs, says Jefferies

The Treasury selloff slowed later in the session, however, after violent pro-Trump protesters broke into the U.S. Capitol building, forcing the halt of a joint session of Congress to certify Joe Biden’s presidential victory.

In U.S. economic data, Automatic Data Processing Inc. said private-sector employment fell by 123,000 in December, the first decline in 8 months, after increasing 304,000 in the previous month. Factory orders rose 1% in November.

The Federal Reserve’s minutes from its December policy meeting showed only a small share of its 17 members of its interest-rate setting committee were in favor of expanding purchases of long-term Treasurys last month.

What did market participants say?

The expected “increase in spending translates into more back-end supply and higher inflation, hence the steeper curve,” said Kevin Walter, co-head of Treasurys trading at Barclays.