Bond Report: 10-year Treasury yield books biggest one-day climb since June 2009 on fiscal stimulus hopes

U.S. Treasury yields rose from record lows on Tuesday, as stocks recovered about half of Monday’s biggest one day loss since 2008, easing demand for safe-haven government paper.

What are Treasurys doing?

The 10-year Treasury note yield

TMUBMUSD10Y, +42.36%

  rose 24.2 basis points to 0.743%, its largest one-day climb since June 2009, while the 2-year note rate

TMUBMUSD02Y, +36.65%

  climbed 13.4 basis points to 0.479%, its biggest one-day rise since June 2009. The 30-year bond yield

TMUBMUSD30Y, +25.46%

  surged 27.9 basis points to 1.217%.

What’s driving Treasurys?

Stocks rallied 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.

U.S. Treasury Secretary Mnuchin convened a call on Tuesday with regulators on the resilience of markets and the COVID-19 economic impact.

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

The S&P 500

SPX, +4.94%

  and the Dow Jones Industrial Average

DJIA, +4.89%

 traded up more than 3% on Tuesday. European and Asian equities also rallied.

The lack of appetite for government paper on Tuesday was underscored by a poor result for a $32 billion auction for 3-year notes. The sale tailed by 2.8 basis points, its largest such “tail” since June 2009. The tail is the amount by which the highest yield the Treasury sold in the auction exceeds the highest yield expected when the auction began.

What did market participants’ say?

“Consistent with the lack of direction and clarity, investors remain attuned for any decisive policy action from the White House either related to a financial stimulus effort or Pence’s Covid-19 mitigation plan. Decisive and effective action from Washington is arguably the missing ingredient for the emergence of a period of relative calm and stability in financial markets – the risks around whether or not this is ultimately delivered are very high,” said Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets.

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