Debt Investors Await More Details on Biden's Infrastructure Plan -- Update

Bond investors are taking a wait-and-see approach to President Biden's next major spending push.

Yields on U.S. Treasurys, which rise when bond prices fall, have paused in recent sessions even after reports on Monday that Biden administration officials are crafting a plan for a multipart infrastructure and economic package that could cost as much as $3 trillion. That comes after the yields had climbed sharply in recent months based largely on expectations that large-scale government spending will help fuel the economic recovery, leading to faster inflation and eventually higher interest rates set by the Federal Reserve.

The yield on the benchmark 10-year U.S. Treasury note settled at 1.613% on Wednesday, according to Tradeweb, down from 1.637% Tuesday and 1.730% last Thursday.

Increased government spending can lift Treasury yields in two ways: first, by boosting economic growth and second, by increasing the supply of bonds, which are used to fund that spending.

Heading into this year, many analysts already expected yields to rise due to expectations that growth would pick up as more people are vaccinated against the coronavirus. Yields, though, began their steep ascent after Democrats won two pivotal Senate elections in early January, improving the prospects for another large coronavirus relief package.

At the time, many investors and analysts expected a package of about $1 trillion, and bonds came under further selling pressure in February once investors realized that the final price tag would be closer to $2 trillion.

Given the reaction to the latest spending package, some analysts expressed surprise that the bond market hasn't registered a bigger response to the latest news out of Washington.

Some said that investors could just be waiting for more details about the spending plan, which could include tax increases to cover at least part of its cost. In addition, some investors may be skeptical about its chances of making it through Congress. And even if it does become law, any infrastructure spending is likely to be spread over a longer period than the coronavirus legislation.

Still, some analysts say that the administration's interest in another multitrillion-dollar spending bill is another reason that yields could keep climbing, even after their big adjustment in recent months.

"Given our view that we think $3 trillion gets done, and there is some funding implication, I think rates have more room to rise," said Priya Misra, head of global rates strategy at TD Securities in New York.

Write to Sam Goldfarb at sam.goldfarb@wsj.com


  (END) Dow Jones Newswires
  03-24-21 1611ET
  Copyright (c) 2021 Dow Jones & Company, Inc.

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