U.S. 30-Year Yield Highest Since June on Election Calculus

(Bloomberg) -- The longest-maturity Treasury yield surged to a three-month high Monday as traders adjusted their election bets.

The yield curve steepened as the 30-year rate climbed more than nine basis points to 1.581%, the highest level since June 10, driving the widely watched 5- to 30-year spread to a peak of almost 125 basis points. Rates moved as U.S. President Donald Trump's coronavirus diagnosis supported the prospects both for fiscal stimulus and an easier election win by his Democratic opponent Joe Biden, even as Trump said he'll leave the hospital this evening.

A clear and undisputed winner of the Nov. 3 vote had been one of the most underappreciated risks in financial markets prior to Trump's diagnosis. Biden has extended his advantage in opinion polls in recent days, with the RealClearPolitics average putting him more than 8 percentage points ahead of the incumbent.

In addition to shifting the election landscape, Trump's illness may also boost the chances of a nearer-term stimulus deal in Washington, which would have a buoyant affect on Treasury rates. Supply could also add pressure, with reopening sales for both 10- and 30-year debt set to take place this week. Data released by the Commodity Futures Trading Commission last week showed that speculators were already becoming more bearish across long-end Treasuries.

The 10-year yield rose by as much as 7 basis points to 0.77%. That's above the 0.75% level cited by BMO strategists Ian Lyngen and Jon Hill in a Monday note as “the next line in the sand toward higher yields.”

“A breach of this key support has only occurred once since June and it presents an obvious hurdle toward a repricing that has any probability of being sustained,” they wrote. “Our biggest concern isn't the absence of fundamental backing for moderately higher rates; rather it's the extent to which risk assets can weather an attempt to move into an environment with 10-year yields between 80-100 bp.”

©2020 Bloomberg L.P.