U.S. government-bond yields rose Friday after signs that Democratic candidate Joe Biden is taking the lead in the presidential election.
The yield on the 10-year Treasury note traded around 0.828%, according to Tradeweb, up from 0.775% at Thursday’s close. Yields on longer-dated Treasurys also climbed. The 30-year yield traded around 1.594% during Friday’s session, compared with 1.545% Thursday.
Yields, which rise when bond prices fall, climbed after new data showed Mr. Biden pulling ahead in Pennsylvania. Though ballots are still being counted, a victory in the Keystone State would give Mr. Biden enough electoral votes to win the presidency as long as he retains the other states he is expected to win.
Bond investors are paying close attention to election results. The 10- and 30-year yields had climbed in the weeks leading up the election. Investors had bet on a Democratic sweep of Congress and the White House, an outcome that many said would likely lead to greater spending on pandemic relief and infrastructure projects. But the prospects for that result fell significantly on Election Day, causing a sharp drop in Treasury yields that extended into the week.
Investors and economists pay close attention to longer-term Treasury yields because they help establish borrowing costs across the economy. Treasury yields still remain above their lows from the summer, when the 10-year yield fell below 0.6%. Analysts said the pre-election rise reflected expectations that Congress would still pass a new phase of coronavirus aid, though the timing and scope of any deal is uncertain.
“There could be more room for rates to decline if it looks unlikely that we are about to get a significant Phase 4 deal in a lame duck session,” analysts at TD Securities said in a note Friday. The yield on the 10-year could retrace all the way to about 0.6%, they added, as the market begins to price in the recent rise in coronavirus cases and its impact on economic growth.
Recent economic data suggests the economy is continuing to heal amid rising infections. On Friday, the Labor Department said the U.S. added 638,000 jobs in October. That was above the forecast of economists surveyed by The Wall Street Journal, who expected an increase of about 530,000 jobs. The unemployment rate fell to 6.9%, down from its double-digit peak in April but well-above the pre-pandemic level of 3.5%.
Taken together, Friday’s developments helped remove some uncertainty from the market, said Jim Vogel, an interest rates strategist at FHN Financial. But rising coronavirus cases in the U.S. will keep bond yields range bound for the near-term.
“Until you get some clarity on the current outbreak versus the summer, it’s going to be hard for the 10-year to break past 0.88%,” he said. “There could be an economic toll from focusing on government in 2021, rather than Covid-19 in 2020.”
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