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The contests will determine the control of the Senate in the next two years. Many believe that a Senate controlled by Democrats could make it easier for MPs to promote a greater stimulus. More government spending could lead to higher inflation, leading to higher yields.
“It’s almost as if the market is eased, we come to a conclusion, and yields form a wider range. Investors are betting more deficits, more spending and more treasury issues if Democrats gain control of the Senate,” said Gregory Faranello. , the head of the USA. rates at AmeriVet Securities. “Now that the 10 years have broken 1%, we will spend some time in the range of 1% – 1.20%.”
Earlier this week, the rate of return on 10-year inflation expectations reached 2% for the first time in more than two years.
It was a slow return for the 10-year rate, which fell to a record 0.318% in March amid a historic flight to safe assets in the depths of the pandemic. With the unprecedented financial and fiscal stimulus, bond yields gradually rose higher, but Covid’s persistent uncertainty and uneven economic data kept rates recovering.
Earlier this week, bond yields gained more momentum from economic data than expected.
An index of US production activity returned to 60.7 last month, the highest level since August 2018, according to the Institute for Supply Management. Economists surveyed by the Dow Jones had forecast the index to fall to 57.0 in December.
Tom Essaye, founder of Sevens Report, said the return on yields should not put pressure on short-term risk assets.
“That would not be a direct wind of action, but it would reinforce that rising yields are an issue we need to look at closely in 2021,” Essaye said on Tuesday.
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