Treasury Yields Hit Highest Levels Since June

10/05/2020 | 05:35pm

By Sebastian Pellejero

U.S. government-bond yields reached their highest levels in months Monday, lifted by mounting hopes for new fiscal stimulus from lawmakers.

The yield on the 10-year Treasury note settled at 0.760%, according to Tradeweb, up from 0.694% Friday and its highest close since June 9. The 30-year Treasury bond yield climbed to 1.565%, up from 1.48% Friday. Yields rise when bond prices fall.

Helping fuel the climb were increasing hopes for a stimulus deal from Washington ahead of November's presidential election after leaders from both parties signaled progress in talks. Reports that President Trump's health is improving and signs Democratic challenger Joe Biden's lead in polls appears to have helped ease investors' concerns about political turmoil.

Adding to the upbeat economic mood, data showed recovery in the services sector, with the Institute of Supply Management's nonmanufacturing index rising to 57.8 last month from 56.9 in August. The survey tracks the direction of activity in U.S. industries including travel, health care, and real estate, with a reading above 50 indicating expansion.

The 10-year yield began its biggest two-day advance since August on Friday after signs of progress on stimulus legislation, which investors hope could spur a faster economic recovery. Should a deal materialize, analysts expect the government would fund some portion with Treasury bonds. That could raise yields by increasing the overall supply of Treasurys while also boosting growth and inflation.

Treasury yields remain extremely low, supported by ultraloose policies including near-zero interest rates and bond-buying from the Federal Reserve. Analysts expect yields to remain low for years, especially after the Fed dropped its policy of pre-emptively lifting interest rates to stave off inflation.

A tepid jobs September jobs report last week did little to shift expectations, said Jim Vogel, interest-rates strategist at FHN Financial, in a note.

"Unemployment is improving faster than anticipated as households adapt to pandemic life," he said. "Yet, the Fed's concerns about lasting repercussions after the pandemic is in hand are valid. The potential overhang from a "normal" recession can keep rates low beyond the impact of the Fed's accommodation."

Write to Sebastian Pellejero at sebastian.pellejero@wsj.com

(END) Dow Jones Newswires

10-05-20 1634ET

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