Bond Report: Treasury yields push mostly higher as stimulus hopes outweighs virus fears

U.S. Treasury traded mostly higher on Wednesday as investors balanced news of a $2 trillion fiscal stimulus package agreement against broader worries about the rising infection rate and death toll from the COVID-19 pandemic.

What are Treasurys doing?

The 10-year Treasury note yield

TMUBMUSD10Y, -7.06%

rose 4.1 basis points to 0.854%, while the 2-year note rate

TMUBMUSD02Y, -9.29%

fell 4.8 basis points to 0.324%. The 30-year bond yield

TMUBMUSD30Y, -5.86%

climbed 5.7 basis points to 1.419%. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

The bond-market’s attention was fixed on a $2 trillion fiscal stimulus package debated in Congress and now expected to pass soon. Members of the Trump administration said a deal had been struck on stimulus measures intended to give relief to workers, industries and the broader economy as the economy shuts down to prevent the further spread of the disease. News reports suggested, however, several senators may be offering last-minute opposition to the bill.

Investors say the expected fiscal stimulus and the hopes for a recovery at the second half of the year is likely to weigh on bond yields.

Still, an auction for $41 billion of 5-year notes saw decent bidding in the afternoon. The sale’s results suggest investors hold a healthy appetite for short-dated bonds, sensitive to the direction of monetary policy, as economists expect the Fed to keep interest rates at zero for a long time.

Investors also monitored the spread of the coronavirus, which has forced economies across the world to shut down industries and send workers home.

In the U.S., where newly detected cases have soared past Iran, Germany, and Spain, there are now 55,225 cases and 802 deaths. Worries that the virus’ trajectory in the U.S. could mimic the worst-hit countries in Europe has kept yields capped.

In U.S. economic data, durable goods rose 1.2% in February, improving from an 0.2% drop in the previous month. But the core gauge that strips out for transportation saw a more severe 0.8% decline.

Read: After Trashy Tuesday and a Senate deal, even the bond king Jeffrey Gundlach says stocks have upside

What did market participants’ say?

“When the dust settles we are a still of the mind the inflationary impulse of the Fed’s action and a recovering growth picture will translate to a period of reflationary ambitions driving a long-end underperformance,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, in a note.

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