Borrowing costs gauged by the 10-year Treasury yield hit a 14-month high Tuesday, with investors pricing in expectations of higher inflation and a stronger US economy as the government prepares to announce a new multi-trillion spending plan and more Americans receive COVID-19 vaccinations.
The 10-year yield marched up to 1.778% from 1.712% on Monday, extending this year’s fast-paced gain from about 0.9%. Alongside the gains have been pullbacks in technology shares that have largely surged in value since last March as investors sought exposure to companies that would fare well during extended pandemic-lockdown periods. Nasdaq-100 futures on Tuesday fell 0.8%.
The advance in the 10-year yield came as investors prepared for the unveiling by President Joe Biden of a $4 trillion infrastructure plan, potentially on Wednesday, according to the Washington Post. The price tag would include $3.5 trillion in tax hikes, the report said.
Such a pickup in spending would follow the $1.9 trillion fiscal stimulus package put into place earlier this month and more spending would lead the US government to seek more money to fund its plans.
“The prospect of higher debt issuance has seen the bond bears return lifting yields in the 10-year Treasury back above 1.70%,” and pushing up the US dollar, said Sophie Griffiths, a US and UK market analyst at Oanda, in a note.
While Washington and Wall Street gear up for more spending and higher consumer and producer prices, more Americans have been getting coronavirus vaccinations each day. Economists say a healthier population will lead to more businesses reopening and expanding their services. President Biden on Monday said 90% of Americans will be eligible for vaccinations by April 19.
While vaccinations are on the rise, so are new cases of COVID-19. Average daily cases are up about 15% in the past two weeks and average weekly hospitalizations have increased by 5%, the Centers for Disease Control and Prevention warned Monday.