Daily Market Color February 3, 2021Treasury Yields Rise on Hopes for Additional Stimulus Senate Democrats’ decision to fast-track stimulus vote pushes rates higher Market sentiment remained positive today after falling infection rates and the potential for additional stimulus remained in focus. President Biden told Congressional Republicans that their $618 billion stimulus proposal was “way too small.” As a result, Democratic senators have chosen to move forward on a majority vote to approve Biden’s proposal using reconciliation. Senate Minority Leader Mitch McConnell criticized the decision, calling it “unfortunate.” Major US equity indices rose on the day – the S&P 500 and DJIA closing 1.4% and 1.6% higher. Treasury yields and swap rates rose across the curve – the 10-year UST yield closing ~2 bps higher at 1.09%. Dallas Fed President Robert Kaplan believes additional fiscal stimulus is “critical” Kaplan stressed the need for added funding for vaccinations, increased testing, school reopening, and unemployment benefits. He also indicated the Fed would not change its highly accommodative policy anytime soon, adding “we’re in the teeth of this pandemic, and so I think we should be aggressive.” He projects a GDP growth of ~5% in 2021 (Congressional Budget Office estimates ~4.2%) and believes that with more fiscal stimulus, “we’re going to grow faster.” Atlanta Fed President Raphael Bostic believes a rate-hike could happen as early as next year While most officials do not forecast a hike until at least 2023, Bostic believes increased vaccination could help the economy recover faster than anticipated. Because recent economic data has been “positive,” he believes, “we should be open to the possibility that things might happen more strongly than they would otherwise.”
