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U.S. Treasury yields edged up for a second session early Wednesday as optimism about economic recovery lifted stocks, and after the EU, France, Germany and Japan all proposed new fiscal stimulus packages to cushion the blow of the COVID-19 pandemic.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 0.704% rose 2.3 basis points to 0.721%. The 2-year note rate TMUBMUSD02Y, 0.175% was virtually unchanged at 0.184%. The 30-year bond yield TMUBMUSD30Y, 1.445% climbed 2.8 basis points to 1.467%.
What did market participants’ say?
Equities surged and safe-haven bonds sold off after news reports said European Commission president Ursula von der Leyen asked for the power to borrow €750 billion for a recovery fund, with much of the funds given as grants to hard-hit member states of the eurozone. This comes after Germany and France proposed a €500 billion recovery fund last week.
The yield for the 10-year German government bond TMBMKDE-10Y, -0.410% climbed 3.6 basis points to negative 0.392%, while the Italian 10-year bond TMBMKIT-10Y, 1.469% fell by 5 basis points to 1.494%. This narrowed their relative spread by 9 basis points to 1.88 percentage points.
See: Euro surges on reports of €750 billion EU stimulus package
An auction for U.S. Treasury 5-year notes will be held Wednesday afternoon, and may exert a bearish influence on trading for U.S. government bonds.
Investors will also await the Federal Reserve’s Beige Book, a collection of anecdotes from businesses across the country, which may have offered guidance to the central bank as it looks to revive growth.
What did market participants’ say?
“Projections of potentially weaker growth have improved chances of more EU fiscal stimulus, based on today’s proposal by the EU Commission. Stocks are higher on the suggested spending mix weighted toward outright grants to weaker countries rather than the loans that key (solvent) members would prefer to see extended,” said Jim Vogel, an interest-rate strategist at FHN Financial, in a note.
“Relative to the US, the stakes are higher for the EU as its central bank is more extended than the Fed, and its economy has been fragile the last three years,” said Vogel.
