Bonds

Treasury yields reverse lower as investors flock to safe assets amid equity sell-off

Treasury yields turned slightly lower on Monday to kick off 2021 as investors flocked into safe assets amid a broad sell-off in stocks.

The yield on the benchmark 10-year Treasury note dipped 1 basis point to 0.90% after rising to 0.94% earlier in the day. The yield on the 30-year Treasury bond also reversed lower to trade at 1.64%. Yields move inversely to prices.

Treasurys

Wall Street had an ugly start to the new year with the Dow Jones Industrial Average dropping more than 700 points at one point on Monday. The declines came ahead of Tuesday's runoff elections in Georgia, where victories by the Democratic candidates in both races would flip control of the Senate just months before Joe Biden's inauguration.

A blue sweep in these races would give Democrats control of the House, Senate and White House. Some investors are fearful about the economic ramifications of this majority as Democrats would likely raise taxes and introduce less favorable corporate regulations.

"The initial upside in Treasury yields overnight was attributed to the headlines suggesting the Democratic candidates Ossoff and Warnock have slight leads," Ian Lyngen, BMO's head of U.S. rates, said in a note. "The kneejerk selling associated with the prospects for a Democratic Congress is linked to the assumption of greater deficit spending and therefore net Treasury issuance."

Meanwhile, several Covid-19 vaccine options now being rolled out across the U.S., though supply constraints have slowed distribution of late. Moncef Slaoui, the head of Operation Warp Speed, said on Sunday that the U.S. could ramp up its vaccine rollout by giving a group of Americans half doses of the drug developed by Moderna.

As of Monday morning, the U.S. has recorded more than 20.6 million cases of the virus and more than 351,000 deaths, according to data compiled by Johns Hopkins University, with cases continuing to rise.

"Although we favor higher long term rates in 2021, we still expect the demand for US Treasuries to remain strong, with the Fed a constant hand (potential for more not less) and bank demand strong as deposits continue to grow and loan demand to remain on the weaker side," Gregory Faranello, head of U.S. rates at AmeriVet Securities, said in a note on Monday.

Auctions will be held for $54 billion of 13-week Treasury bills and $51 billion of 26-week bills.