Ten-Year Yield Closes Above 1% For First Time Since March
Extending the move to the downside seen in the previous session, treasuries moved significantly lower during trading on Wednesday.
Bond prices came under pressure in morning trading and remained firmly negative throughout the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 8.7 basis points to 1.042 percent.
With the notable increase on the day, the ten-year yield ended the session above 1 percent for the first time since March.
The weakness among treasuries came as traders reacted to the results of the highly anticipated Georgia runoff elections on Tuesday.
Democratic candidate Rev. Raphael Warnock is projected to win his race against Republican Senator Kelly Loeffler, while the race between Jon Ossoff and GOP Senator David Perdue is too close to call but the Democrat is in the lead.
If Ossoff holds onto his narrow lead, the Senate would be split 50-50, with a tie-breaking vote by Vice President-elect Kamala Harris giving Democrats control of the chamber.
The potential for Democrats to control the House, Senate and White House reduced the appeal of safe havens like bonds amid expectations that of additional fiscal stimulus.
At the same time, analysts have pointed out that the narrow margin in the Senate would not necessarily lead to smooth sailing for President-elect Joe Biden’s agenda.
“This doesn’t mean the Democrats now have free rein to pursue more radical health care or environmental policies,” said Paul Ashworth, Chief U.S. Economist at Capital Economics. “For a start, they are still a long way short of a filibuster-proof 60-seat majority in the Senate.”
“Admittedly, they could use budget reconciliation, which only requires a simple majority,” he added. “But that can only be used once a year, imposes some other restrictions, and would still require the support of the most centrist Democratic Senators like Joe Manchin and Kyrsten Sinema.”
Meanwhile, traders largely shrugged off a report from payroll processor ADP showing an unexpected drop in private sector employment in the U.S. in the month of December.
ADP said private sector employment fell by 123,000 jobs in December after jumping by a downwardly revised 304,000 jobs in November.
The decrease surprised economists, who had expected employment to climb by about 88,000 jobs compared to the addition of 307,000 jobs originally reported for the previous month.
“As the impact of the pandemic on the labor market intensifies, December posted the first decline since April 2020,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “The job losses were primarily concentrated in retail and leisure and hospitality.”
On Friday, the Labor Department is scheduled to release its more closely watched monthly employment report, which includes both public and private sector jobs.
Treasuries remained firmly positive following the release of the minutes of the latest Federal Reserve meeting, which showed there was some discussion about weighting the central bank’s purchases of Treasury securities toward longer maturities.
Looking ahead, trading on Thursday may be impacted by reaction to data on weekly jobless claims, the U.S. trade deficit and service sector activity.