Treasury Yields Rise Despite Infections Rising in New Virus Hotspots

Rates and stocks climb sharply higher on speculation President Trump could be released from the hospital. President Trump’s avoidance of serious complications from COVID-19, coupled with ongoing progress of stimulus talks have supported financial markets to start the week. The S&P 500 and DJIA are 0.90% and 1% higher, respectively, to start the day while Treasury yields are 4-6 basis points higher on the long end of the curve. This morning’s price action has pushed the spread between 5-year and 30-year Treasury yields to its widest level since May:  

Stimulus talks continue despite President Trump’s diagnosis.  House Speaker Nancy Pelosi believes Trump’s positive diagnosis “kind of changes the dynamic” of her negotiations with Treasury Secretary Steven Mnuchin and is optimistic that they can strike a deal.  She asked airlines and other sectors to delay job cuts, promising that a targeted package will be approved soon.  The $2.2 trillion deal passed by the House is still pending approval by the Senate.  On Saturday, President Trump tweeted, “OUR GREAT USA WANTS & NEEDS STIMULUS.  WORK TOGETHER AND GET IT DONE.”  

Week ahead.  US trade deficit numbers will be released tomorrow, with economists expecting the deficit to widen.  Fed Chair Jerome Powell and ECB Chief Economist Philip Lane will speak about the current economic outlook at the National Association for Business Economics. On Wednesday, the FOMC will release minutes from its September meeting where officials decided to leave rates at the current near zero levels for the foreseeable future. The weekly jobless claims for October 3rd will be published on Thursday and is forecasted to stay near last week’s elevated level after staying consistently high for the past few weeks.