U.S. government-bond yields rose Tuesday, lifted by positive economic data in the run-up to results from key elections for control of the Senate.
The yield on the benchmark 10-year Treasury note recently traded at 0.959%, according to Tradeweb, up from 0.915% at Monday’s close. The 30-year yield is trading around 1.715%, from 1.655% Monday. Yields rise when bond prices fall.
Yields rose Tuesday after data from the Institute for Supply Management showed the U.S. manufacturing sector’s activity expanded in December at the quickest rate in more than two years. The ISM Manufacturing Report on Business PMI for December was 60.7, up from 57.5 in November and exceeded expectations from economists polled by The Wall Street Journal, which forecasted a decline to 57.
The gains also came ahead of results from Tuesday’s runoff elections in Georgia, which will determine control of the U.S. Senate. Many investors believe that a Democratic capture of both seats would herald greater spending on pandemic-relief efforts, something analysts at TD Securities said could push the 10-year yield back above 1%—a level last hit in March.
The 10-year yield has traded within a range around 0.9% in recent weeks, constrained by a recovery that is progressing in fits and starts and Federal Reserve efforts to keep borrowing costs low. The central bank cut interest rates to near zero and has committed to buying billions of dollars of bonds to fuel the U.S. recovery.
The Fed has also committed to letting inflation run past its 2% target for a period of time, seeking to average 2% inflation over the long term after not reaching that target for many years. That has helped push some investors toward Treasury inflation-protected securities, or TIPS, in recent weeks, driving yields to record lows.
The yield on the 10-year TIPS recently traded Tuesday at minus 1.089%. That is up from a record low of minus 1.109% at Monday’s close.
In another sign investors expect a pickup in inflation: The difference between the nominal and inflation-protected 10-year yield, a measure of investors’ expectations for average annual inflation over the next decade known as the break-even rate, was 2.021% as of Monday—the highest close since November 2018.
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