Treasury Yields Reach 1%; Nasdaq Futures Tumble: Markets Wrap

(Bloomberg) -- Benchmark Treasury yields touched 1% for the first time since March and technology stock futures tumbled as investors speculated over the outcomes of the U.S. Senate races in Georgia.

Markets started pricing in the possibility of a Democrat-controlled Congress after Raphael Warnock ousted Republican Kelly Loeffler in a runoff race, leaving control of the Senate hinging on the state’s other election, which remains too close to call. If Democrats prevail, the thinking goes that it will usher in more spending to support economic growth and bring tougher antitrust scrutiny to the technology giants.

Cyclical assets posted strong gains, and futures on the Russell 2000 Index of small-cap stocks rallied more than 1%. European stocks were modestly higher, led by banks and energy companies. Bitcoin surged past $35,000 to hit another all-time high. Nasdaq 100 futures were down 1.9%.

In Treasury markets, the move back to 1% for 10-year bond yields shows positioning for the Blue Wave. If lawmakers were to approve additional stimulus spending, it would mean more bond issuance and higher yields on longer-maturity Treasuries. Traders now see U.S. inflation averaging just over 2% per year over the coming decade, the highest level since 2018.

“A dual win should lead to a steeper curve and a weaker dollar as the fiscal situation would be seen as unsustainable, but it would also be welcomed by the equity market, particularly cyclicals, while in growth pressure might appear on the monopolistic Internet giants,” Sebastien Galy, senior macro strategist at Nordea Investment, said in a note.

In the second runoff race, Republican Senator David Perdue and Democrat Jon Ossoff were locked in a dead heat with some absentee votes yet to be counted and as many as 17,000 military and overseas ballots due by Friday.

Democrats’ Senate Bid Hangs in Balance After First Georgia Win

Elsewhere in markets, oil prices steadied near a 10-month high after Saudi Arabia pledged to cut output. The dollar was slightly weaker, while Asian markets were mixed.

What to watch this week:

• U.S. Congress meets to count electoral votes and declare the winner of the 2020 Presidential election Wednesday.
• FOMC minutes out Wednesday.
• U.S. unemployment report for December is due Friday.

These are some of the main moves in markets:

Stocks

• Futures on the S&P 500 Index decreased 0.5% as of 9:35 a.m. London time.
• The Stoxx Europe 600 Index rose 0.3%.
• The MSCI Asia Pacific Index increased 0.1%.
• The MSCI Emerging Market Index gained 0.2%.

Currencies

• The Bloomberg Dollar Spot Index fell 0.2% to 1,113.85.
• The euro climbed 0.3% to $1.2336.
• The British pound gained 0.1% to $1.364.
• The Japanese yen weakened 0.1% to 102.81 per dollar.

Bonds

• The yield on 10-year Treasuries gained six basis points to 1.01%.
• The yield on two-year Treasuries gained one basis point to 0.13%.
• Germany’s 10-year yield increased six basis points to -0.52%.
• Britain’s 10-year yield gained three basis points to 0.24%.

Commodities

• West Texas Intermediate crude increased 0.2% to $49.90 a barrel.
• Gold strengthened 0.3% to $1,956.33 an ounce.

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