Daily Market Color February 3, 2021Improving Economic Outlook Continues to Fuel Markets Yield curve steepens to a four-year high amid stimulus talks and positive vaccine news Senate Democrats voted to open debate on the 2021 fiscal budget to include an additional $1.9 trillion in COVID-19 relief. The White House also announced vaccine doses will be sent directly to retail pharmacies in addition to states, which would raise weekly vaccine nations to ~11.5 million from 1 million. Treasury yields and swap rates rose sharply higher as a result – the 10-year UST yield climbing 4 bps higher to 1.13%. The increase in rates pulled the spread between 2-year and 10-year rates to 1.02% – the steepest level in more than 4 years. Private payrolls grew by 174,000 last month after declining 78,000 in December After declining for the first time since April last month, the ADP report revealed private payroll gains beat the +70k estimate. The largest gains were seen in the health care (+48k) and professional sectors (+40k), with the leisure and hospitality also reporting a +35k rise. The report serves as a preview of Friday’s jobs report, which is expected to show an unchanged unemployment rate of 6.7%. US Treasury leaves planned issuance unchanged ahead of $1.9 trillion stimulus bill With its current cash balance at $1.6 trillion and plans to reduce it to $500 billion by June, the Treasury was planning on reducing its debt issuance this year. But with the outcome of Biden’s stimulus plan still uncertain, the Treasury has chosen to sell $126 billion in long-term debt (3yr, 10yr, and 30yr notes) next week but will not expand sales of any other tenors. The 5y30y spread narrowed after the announcement before widening to its highest level since 2016. The department also “continues to actively explore the possibility” of SOFR-linked debt. COVID-19 cases are declining in the US The seven-day average is currently 141,437 new cases/day, down 30% from the average two weeks ago. Hospitalizations have also declined to the lowest level since late November, with the number falling to 92,880 yesterday from 93,536 the day before.
