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10-year Treasury yield edges higher as investors brace for Senate runoffs

Long-maturity Treasury yields moved slightly higher on Tuesday, ahead of Georgia’s runoff elections later in the day, which will determine whether Republicans keep hold of the Senate.

The yield on the benchmark 10-year Treasury note rose 2 basis point to 0.943%, while the yield on the 30-year Treasury bond moved up to 1.696%. Yields move inversely to prices.

Treasury yields climbed ahead of the pivotal runoff vote. If the Democrats gain control of the Senate some fear this could mean higher tax rates, but it could also lead to a bigger and faster government stimulus spending package.

“The two races are close and therefore the market is left to simply trade the results rather than price to any consensus outcome ahead of the event,” Ian Lyngen, BMO’s head of U.S. rates said in a note.

Traders are also keeping an eye on inflation after the “breakeven” rate for 10-year inflation expectations briefly touched 2% for the first time in more than two years.

“The improvement of inflation expectations is especially encouraging in the backdrop of the lockdown headlines, and the resilience of breakevens speaks to the durability of the reflationary ambitions underpinning Treasuries at the moment,” Lyngen said.

On the data front, an index of U.S. manufacturing activity rebounded to a reading of 60.7 last month, the highest level since August 2018, according to the Institute for Supply Management.

A reading above 50 indicates expansion in manufacturing. Economists polled by Dow Jones had forecast the index falling to 57.0 in December.

Auctions will be held Tuesday for $30 billion of 119-day bills and $30 billion of 42-day bills.

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