US Treasury yields refresh multi-day top even as budget headlines test stimulus optimism

• US 10-year Treasury yields pokes five-week top, 30-year, 2-year rates refresh monthly top.
• Senate passage of infrastructures spending favored bulls initially but GOP pledges not to support Democrats on debt ceiling.
• Risk catalysts remain as the key, US CPI will decorate today’s calendar.

Despite challenges to the recent infrastructure spending passage-led optimism, bond bears keep the reins during early Wednesday.

US Senate passage of $1.2 trillion stimulus after months of haggling, backed by President Joe Biden, earlier propelled the US Treasury yields and Wall Street. However, the shift in the market’s attention towards a bigger concern, the US budget negotiations, should have challenged the upbeat bond coupons.

House Majority Leader Steny Hoyer conveyed the policymakers’ readiness to return early from the break to tackle the budget concerns if passed by the Senate. Though, the Wall Street Journal (WSJ) came out with the news suggesting further political jitters relating to the US stimulus and debt ceiling after the $2.0 trillion limits expired in early August. “Most Republican senators have signed on to a pledge to force Democrats to raise the debt ceiling through procedures that don’t rely on GOP votes, escalating the political tug of war over who is responsible for keeping the U.S. from defaulting,” said WSJ.

That said, the 10-year coupon adds 1.4 basis points (bps) to 1.356%, the highest since early July. Further, the 30-year and 2-year rates rise 2.1 bps and 0.2 bps to refresh monthly top surrounding 2.0% and 0.24% in that order.

Behind the Treasury yield’s latest run-up could be the escalating covid fears from Australia, the UK and China, not to forget the US, as well as hawkish Fedspeak.

While Australia is up for extending the local lockdowns, the US and the UK, not to forget China, want to maintain the recent off from the virus-led activity restrictions. On the other hand, comments from US Atlanta Federal Reserve President Raphael Bostic, Richmond Fed President Thomas Barkin and Chicago Fed President Charles Evans signal that the tapering is a favorite among the Fed policymakers.

Looking forward, virus headlines and stimulus/budget news may entertain the market ahead of the US Consumer Price Index (CPI) data for July, expected to ease from 0.9% MoM to 0.5%.

Read: US July CPI Preview: Inflation data unlikely to change Fed tapering expectations