A section of the Treasury yield curve continues to steepen on strengthening hopes for additional US fiscal stimulus.
The spread between the US 10- and two-year yields has risen to 71 basis points, the highest level since June 5. The spread has widened by 12 basis points this week alone and is up more than 30 basis points from August lows.
According to Reuters, the US House Speaker Nancy Pelosi said on Thursday that negotiators were making progress in fiscal stimulus talks, and legislation could be hammered out “pretty soon.”
With Democratic presidential candidate Joe Biden leading polls, the bond market looks to be pricing a surge in spending and deficit. According to Moody’s analytics, Biden’s spending plan would boost the total deficit to $2.6 trillion on a dynamic basis by 2030. Besides, some analysts believe Biden victory would force the Federal Reserve to hike interest rates sooner-than-expected.
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