Treasury Yields Touch Multi-Month Highs

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 [email protected]