Bond Report: Treasury yields follow stock market’s cue, ending higher on vaccine hopes


U.S. Treasury yields came off their lows on Monday, following the stock market higher as the start of the world’s biggest vaccine study bolstered investor sentiment at the expense of the bond market.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 0.611% rose 2 basis points to 0.609%, marking its biggest daily rise in more than two weeks, while the 30-year bond yield TMUBMUSD30Y, 1.260% gained 1.4 basis points to 1.252%, snapping five consecutive daily yield declines. The two-year note rate TMUBMUSD02Y, 0.157% ticked 0.6 basis points higher to 0.153%.

What’s driving Treasurys?

Hopes for a vaccine weighed on demand for haven assets like government debt. Moderna announced it has begun the biggest study of a coronavirus vaccine on Monday.

Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said news of an effective vaccine was likely to arrive in November, bolstering hopes that medical advancements could bring about a swift and full recovery of the U.S. economy.

The White House and Republicans are set to unveil a $1 trillion fiscal stimulus package on Monday, intended to support the economy after extended unemployment benefits expire later this week. Without additional fiscal support, investors worry a sudden drop in jobless benefits could halt the country’s tentative recovery, already imperiled by the ever-increasing tally of COVID-19 cases in the U.S.

It remains unclear if Congress will manage to pass a stimulus bill this week, as lawmakers remain divided over extending unemployment benefits, with Republicans worried such a move could discourage Americans from returning to work.

Investors also continued to contend with data showing the coronavirus was spreading rapidly across the country. The number of coronavirus infections in the U.S. climbed to 4.23 million, while deaths attributed to the disease rose to 146,935, according to data aggregated by Johns Hopkins University.

On the economic front, orders for durable goods, those meant to last at least three years, rose strongly in June for the second straight month after historic declines in the early spring. Orders climbed 7.3% last month, the government said Monday. Wall Street economists had expected a 7% increase.

What did market participants say?

“Stocks continue to outperform on optimism that a vaccine could make it through phase three by Q4 — presumably with positive results thereby clearing the way for production in 2021. Treasury yields edged a touch higher in a rare parallel shift,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

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