TOKYO, Feb. 16 (Reuters) – U.S. Treasury Benchmark yield rose to its highest levels since March Tuesday on expectations for a major U.S. fiscal stimulus while investors promised an extended period of ultra-easy money policy.
Optimism about vaccine spread also strengthened market sentiment, picking up stocks and other assets that were more risky at the expense of safe places like Finance.
10-year benchmark yields rose as high as 1.250% early in the Asian session, to the highest level since March 20. Thirty-year yields reached a one-year high of 2.0378%.
The bond market was closed on Monday for Presidents’ Day.
President Joe Biden met with a two-pronged group of local government officials on Friday to secure support for Covid’s $ 1.9 trillion relief package.
“The market has fully embraced the prospect of Biden’s $ 1.9 trillion stimulus, and accelerated vaccine delivery also supports bearish price action,” Westpac strategists wrote of Finance in messenger note Tuesday.
“That should mean a push to 1.25% and above for the 10-year bond. ”
The closely watched yield curve between two-year and 10-year notes has narrowed as short-term rates were still maintained with the expectation that the Federal Reserve will keep policy levels close. zero for years to come.
The curve moved to as much as 113.40 basis points, the widest output gap since April 2017.
Last week, Fed Chairman Jerome Powell stressed the need for a “patient money policy” to get the U.S. back to full employment.
Investors will look for further confirmation of that position in minutes from the central bank’s January meeting, which will be published on Wednesday.
The idea was that the Fed could let the economy run hot in anticipation of inflation near the highest level since 2014 at 2.22%. That means investors are now pricing in an average annual inflation of 2.22% for the next 10 years.
Inflation-linked debt demand and date will be determined this week when the Treasury sells $ 27 billion in 20-year bonds Wednesday and $ 9 billion in 30-year Securities Securities (TIPS) Thursday.
“Politicians may do little to stop inflation compensating for rising anytime soon – if they can welcome it,” wrote Oliver Jones, Chief Economist Markets at Capital Economics, in a note.
“It would not be surprising for us to see 10-year inflation compensation rise above 2.5% by the end of 2021, pushing 10-year Treasury yields to around 1.5%. ”(Editing by Shri Navaratnam)