Bond Report: Treasury yields surge as stocks rally on fiscal stimulus hopes

U.S. Treasury yields rose from record lows on Tuesday as stocks looked to recover from their biggest single-day selloff since 2008, lifting demand for government paper, a recipient of haven inflows over the last few weeks.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 0.650% rose 20.4 basis points to 0.702%, while the 2-year note rate TMUBMUSD02Y, 0.443% climbed 12.6 basis points to 0.473%. The 30-year bond yield TMUBMUSD30Y, 1.130% surged 26.5 basis points to 1.203%. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

U.S. stock futures were rallying early Tuesday on expectation of additional fiscal stimulus, a day after U.S. equities saw their largest drop in more than a decade. President Donald Trump announced the possibility of payroll tax cuts and a whole slew of measures to help the economy get through the COVID-19 epidemic. Trump also said the White House was talking with industry groups to see how businesses were handling disruptions from the coronavirus.

But CNBC News reported that the White House was far from rolling out specific policies, according to administration officials.

Futures for the S&P 500 SPX, -7.59% and the Dow Jones Industrial Average DJIA, -7.78% point to a higher start for Tuesday’s session. European and Asian equities also rallied.

Investors will look forward to some U.S. government bond supply, with a $32 billion auction for 3-year notes set for 1 p.m. ET. The weakness in the market could also reflect how broker-dealers are bidding up yields to more attractive levels to ensure a successful sale.

What did market participants’ say?

“Strong risk-on move this morning erasing some of yesterday’s carnage. Most markets reversing along with equities and the US long end higher and steeper. Expectations for more central bank activity including the Fed and ECB remains firm to help support the global economy. Talk of out of Washington is more stimulus with a payroll tax cut,” wrote Gregory Faranello, head of U.S. rates at AmeriVet Securities.

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