Daily Market Color

Rates Rose to Four-Month High on Hopes of Stimulus Deal

Rates hit four-month highs as stimulus hopes continue to drive markets
The 10-year Treasury yield closed 2 bps higher on Wednesday at 0.81% after hitting 0.836% earlier in the day, the highest level since June 9th.  The spread between the 2-year and 10-year yields at one point widened out to 68 bps, the widest it has been since June 8th.  UST yields are trading 1-2 bps higher this morning. 
Positive economic data alongside fiscal and monetary support over the course of the pandemic has pushed rates higher across the curve from March’s lows — the benchmark 10-year yield has rebounded from hitting a record of 0.318% after virus fears spurred an investor flight to safety.  With the presidential election around the corner, economists are divided on which direction rates will go.  Some predict longer-term yields will continue to rise after November 3rd if the Senate shifts to a Democratic majority on the belief that Congress would then be able to pass a large stimulus package.
Equities turn lower after a volatile session
The lack of stimulus pulled stocks lower on Wednesday — the S&P 500 and DJIA closing down 0.2% and 0.35%.  The Senate attempted to pass a $500 billion aid package, which would have funded unemployment benefits, school budgets, and increased virus testing.  The proposal failed in a 51-44 vote, missing the 60-vote threshold.  The deal fell short of the $1.8 trillion package offered by the White House and the $2.2 trillion deal Democrats continue to back. 
Despite the continued setbacks, House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin chose to continue their negotiations past their Tuesday deadline.  Pelosi’s spokesperson added that the two are “closer to being able to put pen to paper to write legislation.”
Initial jobless claims fall to 787,000
The figure for the week ending October 10th came in lower than the previous week’s revised 842,000, pulling the four-week moving average down to 811,250.  Claims have remained at elevated levels for the past few weeks, sustained by the rise in permanent layoffs.  Despite the number falling to its lowest level since March, claims remain far off from pre-COVID-19 levels, with the earlier record only 695,000.

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