US Treasuries top 1% after Georgia Senate race ends in "Blue Wave" win for incoming Biden administration

  • Ten-year Treasury yields rose above 1% for the first time since last March, after the Democrats won two Senate seats in the Georgia run-off election, cementing Joe Biden's control of government.
  • Democrat control of both the House and the Senate raises the chances of lawmakers approving more government stimulus for the economy, meaning lower chances of more Federal Reserve stimulus.
  • "For markets, 'blue' is the operative word," analysts at Rabobank said in a note.
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Investors dumped US Treasuries on Wednesday, pushing yields above 1% for the first time since March, after the Democrats won two seats in the most hotly contested senatorial race in recent memory, bringing the anticipated "Blue Wave" win that many had thought possible over last year.

Democrats will win both US Senate runoffs in Georgia to retake the US Senate, according to projections from Decision Desk HQ and Business Insider.

Republican Senators Kelly Loeffler and David Perdue lost their seats to Democrats Raphael Warnock and Jon Ossoff, respectively, bringing control of the Senate into Democrat hands for the first time since 2015 and unified control of government for the first time since 2011.

Analysts see Democrat control of both the House and the Senate as meaning there is a greater chance that lawmakers will pass additional legislation to provide financial support for the economy and therefore, there will be less pressure on the Federal Reserve to keep borrowing rates at zero for a longer period of time or to increase its asset purchasing program.

"For markets, 'blue' is the operative word. They had –like the GOP– presumed the two Georgia seats were in the bag, and only now enter a world where presumptions of US political gridlock go out the window and the government might actually be in the position to do something," Rabobank strategists said in a note..

Yields on the benchmark 10-year Treasury note rose 4 basis points on the day to 1.004%, crossing the 1% mark for the first time since March and its biggest selloff in a month. Volume on CBOE Treasury-note futures was around 706,000 lots, almost equivalent to half of Tuesday's volume for the entire session.

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More tellingly, the spread – or gap – between yields on the 10-year and the 2-year notes yawned to its widest since August 2017. A wider spread indicates fixed-income investors believe inflation will pick up more quickly and, therefore, the central bank is more likely to raise interest rates. 

"It looks like the Senate is about to hand Kamala Harris the veto vote with 98% of the votes counted and the probability of a Democratic sweep is now at 95%," Olivier Konzeoue, FX Sales Trader at Saxo Markets, said.

"This means markets will anticipate more fiscal stimulus which could prop up inflation and mechanically push US interest rates higher, but this also increases the prospect of more regulation imposed on technology companies as well as corporate tax hikes," he said. 

Futures on the Nasdaq 100 fell more sharply than those on the S&P 500 or the Dow Jones, down 1.7%, reflecting the likely pressure on the technology sector later in the day. 

The dollar fell broadly, dropping 0.13% against a basket of major currencies, and falling more sharply against several major emerging-market currencies. The dollar lost 0.6% against the Turkish lira, 0.2% against the Brazilian real and 0.1% against the Russian ruble.

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