U.S. Treasury yields struggled for direction on Thursday as the Federal Reserve, as expected, stood pat and the slow trickle of election results had yet to deliver a winner.
What are Treasurys doing?
The 10-year Treasury yield
TMUBMUSD10Y,
rose 0.7 basis point to 0.775%, bouncing off its overnight low of 0.72%. The 2-year note yield
TMUBMUSD02Y,
edged 0.6 basis point higher to 0.149%, while the 30-year bond yield
TMUBMUSD30Y,
was down 0.3 basis point to 1.545%.
What’s driving Treasurys?
Some battleground states have not counted all their votes, leaving the election results still somewhat uncertain.
But the tally suggests investors are likely to face a divided government where Democrats control the White House and Republicans retain the Senate. Democratic candidate Joe Biden carries a 264-214 lead over Trump in Electoral College delegates. Biden needs another 6 votes to win.
See: 2 days after Election Day, Biden needs to win just one more swing state to become president-elect
The difficulty of pushing a large coronavirus aid relief package in a split government has bolstered bond values. A surge in growth and inflation expectations, a bearish influence on bonds, was expected if Democrats achieved a ‘blue sweep.’
But yields bounced off their early morning lows following signs that a tight race in Georgia could still see Democrats contest two Senate seats in runoff elections in January.
Investors digested some economic data in the morning. U.S. initial jobless claims fell 7,000 to 751,000 in the latest weekly period, while continuing claims for the week ending in Oct. 24 fell 538,000 to 7.29 million.
The Federal Reserve did not make any major policy shifts on Thursday. It mostly tweaked its policy statement to reflect a more downbeat view of the current U.S. recovery, saying it had yet to recover to pre-pandemic levels.
Fed Chairman Jerome Powell repeated the call for additional fiscal help from Washington. He also suggested policymakers may tweak asset purchases to favor more longer-dated bonds.
Read: U.S. bond traders out over their skis as bets on ‘blue wave’ Democrat win sink
The Bank of England on Thursday extended the size of its bond purchase program by £150 billion ($196 billion) as lockdowns are put in place in England.
What did market participants say?
“Looks like there will be two runoff elections for two of Georgia’s Senate seats. There’s a real chance we get a blue wave scenario. That means we have an increasing chance of fiscal stimulus becoming much bigger, with more issuance and steepening in the long-end of the curve,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors.
