Treasury Yields Touch Multi-Month Highs -- Update

BY Dow Jones & Company, Inc. | ECONOMIC | 10/21/20 04:17 PM EDT By By Sam Goldfarb

U.S. government-bond yields hit their highest levels in more than four months, following signs of progress in Washington toward a deal on a roughly $2 trillion coronavirus relief package.

The yield on the benchmark 10-year U.S. Treasury note settled at 0.815%, according to Tradeweb, compared with 0.796% Tuesday. That marked its highest close since early June, just before a summer surge of coronavirus cases.

Yields, which rise when bond prices fall, climbed overnight after both House Speaker Nancy Pelosi and White House chief of staff Mark Meadows suggested talks between the White House and Democrats had been productive.

Those comments kept hopes alive that an agreement could be reached by the end of the week. Signs of continued resistance from Senate Republicans tempered optimism, as did comments from Mrs. Pelosi and others acknowledging time was running out to pass a bill before next month's election. But investors remained hesitant to buy Treasurys, aware that next month's elections could also potentially pave the way for a large fiscal package.

"It feels like 30% of the market is convinced that we're going to have higher interest rates after the election," said Jim Vogel, interest-rates strategist at FHN Financial. Meanwhile, he said, "the market has never given up the idea that stimulus was still possible" ahead of the vote, meaning "any announcement from any party that there are still talks keeps rates elevated."

More government spending tends to push up Treasury yields for two reasons: first, by increasing the supply of outstanding bonds as the government ramps up borrowing and, second, by potentially boosting economic growth and inflation, which makes bonds less attractive.

Treasury yields have climbed in recent weeks as renewed stimulus talks have dovetailed with improving odds of a so- called blue wave, in which Democrats could take the White House and win majorities in both chambers of Congress. Under that scenario, many investors anticipate that Democrats would pursue not just additional coronavirus aid but also large- scale infrastructure spending.

Yet powerful forces continue to suppress Treasurys yields, keeping them near historic lows.

Though the economy has rebounded from its sharp contraction earlier in the year, the path of its recovery remains uncertain in the midst of the continuing coronavirus pandemic.

Even when the economy has fully recovered, many investors anticipate sluggish growth and inflation for years to come based on their experience from the decade preceding the health crisis. That has led to bets that the Federal Reserve will keep short-term interest rates near zero for a prolonged period.

Write to Sam Goldfarb at sam.goldfarb@wsj.com


  (END) Dow Jones Newswires
  10-21-20 1617ET
  Copyright (c) 2020 Dow Jones & Company, Inc.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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