US Yields Surge To Start A Busy Week For US Lawmakers

 | Sep 28, 2021 06:55

As my colleague Joe Perry noted in his Week Ahead report, it will be a busy week for US lawmakers, with Congress trying to hash out votes on a $3.5T social welfare spending package, a $1.2T infrastructure bill, and an agreement to raise the debt limit ahead of a potential partial government shutdown on Thursday. For the uninitiated, here is a quick breakdown of where each bill stands as of writing:

  • The $1.2T infrastructure bill has already passed the Senate with help from Republicans, and Nancy Pelosi, the Speaker of the House, is optimistic that it will pass through the House of Representatives this week.
  • The $3.5T social and environmental spending bill remains controversial, with Republicans and more centrist Democrats balking at the big price tag – negotiations on that front are likely to continue, with the headline sticker price potentially working its way lower as the two sides seek a compromise.
  • Both parties recognise the tremendous cost of shutting down the government during a global health crisis, so most analysts are expecting at least a short-term agreement to keep the proverbial lights on ahead of Thursday’s deadline.

Between these big legislative priorities and Fed Chairman Jerome Powell’s clear signal that the central bank intends to announce its taper plans at its November meeting last week, US bond traders have clearly started to price in rising interest rates. Looking at the yield on the United States 2-Year treasury bond, which tends to have one of the best correlations with the value of the US dollar, rates are testing 0.28%, their highest level since the onset of COVID last March and a 10bp rise from the start of the month: