NEW YORK, Oct 30 (Reuters) - Longer-dated Treasury debt sold off on Friday afternoon, steepening the yield curve to the widest since June, as investors anticipated the deluge of supply that would come from a post-election stimulus package.
Investors pulled money out of the U.S. stock market, on track for its worst week since March, on rising COVID cases and election jitters. But the risk-off move did not benefit Treasury bonds, which typically function as a safe-haven investment.
The benchmark 10-year yield was last up 3.1 basis points to 0.867%. The two-year yield remained anchored at 0.154%, which steepened the yield curve. The yield curve, measured as the spread between the two and 10-year yields , widened as high as 71.8 basis points and was last at 70.8.
Meanwhile, U.S. stock indexes were red: The S&P was last down 1.94%, the Dow was down 1.47% and the Nasdaq was down 2.98%, all headed for their worst week since March.
“It’s not something we’d normally see, especially after last week when stocks sold off and Treasuries rallied. The bond market is actually seeing something no one else is: It is pricing in not if but when stimulus comes,” said Ellis Phifer, market strategist at Raymond James.
Both candidates for president in Tuesday’s election have said they intend to pass more coronavirus stimulus. Democratic challenger Joe Biden has also pledged to lift the federal minimum wage and invest trillions of dollars in infrastructure and green energy programs.
A big stimulus package means more Treasury bond supply. The programs proposed by Biden, who is currently favored to win in the polls, would increase the supply of new debt even further.
“If you end up with a ‘blue wave,’ stimulus could be very large and very quick,” said Phifer. “That could mean a lot of supply. And that is where the bond market is, while the stock market is taking some risk off the table ahead of the election.”
Still the moves in the Treasury market were relatively muted, with traders unlikely to make large changes in positions before the election. Though markets are betting on a Biden win, high levels of mail-in voting may lead to a court fight over the result if there is no immediate definitive winner. (Reporting by Kate Duguid Editing by Marguerita Choy and Jonathan Oatis)
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