Pelosi’s 48 Hour Deadline Causes Treasury Yields to Spike

The market’s trading flat this morning as investors await, what else, but a stimulus deal from Congress. House Speaker Nancy Pelosi gave Republicans a 48-hour deadline on Sunday to reach an agreement, or else negotiations would be pushed until after the presidential election.

“The 48 only relates to if we want to get it done before the election, which we do,” said Pelosi.

“We’re saying to them, we have to freeze the design on some of these things — are we going with it or not and what is the language? I’m optimistic, because again we’ve been back and forth on all this.”

So far, neither side has blinked. But the market remains cautiously optimistic about a deal being done in the next day or two.

That optimism has shown itself in treasury yields, which jumped in response to Pelosi’s remarks. The 10-year Treasury note yield rose 4 basis points to 0.781%, which is the highest it’s been since October 9th. The 30-Year Treasury bond increased 4 basis points as well, setting a weekly high of its own.

“The overnight weakness in Treasuries offers further confirmation that the prospects for another injection of fiscal stimulus (however limited) outweigh the incoming economic data,” explained Ian Lyngen, BMO’s head of U.S. rates.

Lyngen’s right; even a small stimulus package could do the trick. Some analysts believe it could distract investors from larger economic problems.

″[China’s] Q3 GDP fell a bit short of expectations, but the Sept figures (retail sales and IP) both exceeded forecasts, and this is giving a boost to equity sentiment,” said Vital Knowledge founder Adam Crisafulli.

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Sentiment could change in a hurry, though, if Covid-19 cases continue to make a comeback. Johns Hopkins University data showed that infections grew by 5% or more in 38 states as of last Friday. In Europe, roughly 97,000 new cases are being added per day, marking a 44% increase from the week prior.

As a result, the market’s receiving opposing signals from every direction. That’s made trading equities in October particularly difficult.

In November, however, with a controversial presidential election set to take place, it could become downright impossible to discern the short-term trend.

“The many cross-currents we have been fretting over in recent weeks remain omnipresent. The U.S. elections are close at hand, fiscal stimulus remains a key near-term potential catalyst, and developments on the virus front remain critical to the longer-term outlook,” remarked Jeffries strategist Sherif Hamid.

“A lot is very likely to happen over the next several weeks, and the broader macro picture could thus change pretty massively depending on developments along all of those fronts.”

In other words, anything can happen. That’s scary stuff for bulls who are still long on stocks.

But, if a stimulus package arrives pre-election, and Covid-19 doesn’t completely spiral out of control, short-term buyers could stand to make a killing.

Because don’t forget: ever since the market crashed in March, it’s been driven to new highs by unprecedented stimulus and a dovish Fed. Another cash injection would likely spur equities on to another quick rally.

Even if economic data continues to prove less-than-stellar.

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