Yields on U.S. government bonds marked new territory in their recent climb on Tuesday before quickly retreating, as investors focused on President Biden’s next big spending push and prepared for the end of the quarter.
The yield on the benchmark 10-year U.S. Treasury note rose as high as 1.773% early in the session—its highest intraday level since January 2020—but was back to 1.724% at Tuesday’s close, according to Tradeweb, compared with 1.721% Monday.
Yields, which rise when bond prices fall, initially climbed amid reports that President Biden on Wednesday will announce plans for a two-part government-spending package that could total anywhere between $2 trillion and $4 trillion, less than a month after passing a $1.9 trillion bill. Increased government spending can lift Treasury yields by boosting economic growth and increasing the supply of bonds, which are used to fund that spending.
Yields, though, gave up gains as the trading day progressed. Tuesday’s session was the second-to-last day before the end of the first quarter. Typically, financial institutions and money managers prefer liquid assets such as Treasurys on their balance sheets at quarter-end, providing downward pressure on yields. Many investors also buy Treasurys at this time to match benchmark indexes, which are adjusted every month to reflect new debt that the government has issued.
Some money managers are betting that a stimulus-powered recovery will push the Federal Reserve to raise interest rates as early as 2023, despite central bank officials pledging to keep monetary policy loose until the labor market recovers and inflation stays above 2%. Investors tend to sell Treasurys when they think the economy will grow fast and experience rising inflation, which erodes the value of bonds’ fixed payments.
