The bond market is starting to wake up with interest rates headed higher
The bond market appears to be waking up.
After trading in a close range since June, Treasury yields are starting to break out of their range and look set to edge higher. The 10-year yield reached a high of 0.834% early Wednesday morning and was hovering just at the 0.80% level in afternoon trading.
1% 10-year?
Strategists say with the Fed holding rates at zero, and actively buying Treasury assets, the 10-year is not going to rise that much. And if the reason it’s rising is stimulus, that would not necessarily spook the stock market, since stimulus would be seen as a booster for stocks.
“It would not be unreasonable to think the 10-year yield could get between 1% and 1.25% over the next few quarters,” said Caron.
Caron said it will make a big difference whether the stimulus is approved before or after the election. With a blue wave, where Democrats take the White House and Congress, the package early next year could be even larger, than if President Donald Trump remains in the White House.
Congress already passed Covid-related relief earlier in the year, and the budget deficit is expected to edge over $3 trillion this year. Democrats have been seeking $2.2 trillion in new stimulus, but Senate Republicans has said they would hold new spending closer to $1 trillion.
To pay for that stimulus, the Treasury has had to increase the amount of debt it is issuing, and another stimulus program would add all that much more. That is a factor helping drive yields higher.
Reference: CNBC
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