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Illustration: Sarah Grillo/Axios

U.S. government bonds could breakout further after yields on the benchmark 10-year Treasury note ticked up to their highest since early June last week.

But, but, but: Strategists say this move is about an improving outlook for economic growth rather than just inflation.

What it means: Economic growth comes with inflation but for much of the year investors have been betting the massive increase in the U.S. money supply as a result of stimulus efforts from the Fed and Congress would deliver inflation that might not include growth.

  • That led to a bonanza for gold, silver, Treasury Inflation-Protected Securities and other inflation hedges, and a decline in the dollar.
  • But those assets have reversed much of their earlier gains of late and remained tied down in tight ranges while U.S. government debt yields have surged.

What we're hearing: There's a clear pickup that began after the first presidential debate on Sept. 29, as investors have bet on a Joe Biden victory and blue wave Democratic takeover of Congress that could lead to substantial government spending, including an infrastructure bill. But it's not all politics.

  • It's about "a bounce in economic activity, writ large, expectations of a little more inflation from Fed policy and natural economic trends as well as those politically related issues," Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, tells Axios.

The intrigue: Yields on the 10-year note are even edging above their 200-day moving average for the first time since December 2018, Reuters notes.

Watch this space: Net short bets on the 30-year Treasury bond — which has seen yields jump by 19 basis points since Oct. 1 — reached an all-time high earlier this month, reflecting investors' bets that yields will continue to rise.

  • “It may now be time to flip thinking on U.S. rates where instead of mechanically buying dips ... upticks in bond prices now need to be sold,” analysts at Citigroup wrote in a note to clients Friday.

Where it stands: Top Fed officials, including vice chair Richard Clarida and governor Lael Brainard, have suggested that the Fed could ratchet up its bond-buying program, especially longer-dated bonds, pushing up prices and reeling in yields.

  • But analysts believe the Fed will stand pat if lawmakers can produce a fiscal spending package.
  • "If long-term interest rates rose along with economic confidence and more supply from fiscal authorities, I don’t think the Fed would alter their bond-buying plan," LeBas says. "That’s what they want."

Go deeper

Dion Rabouin, author of Markets
Dec 3, 2020 - Economy & Business

Fed's Beige Book shows underwhelming economic growth

Illustration: Sarah Grillo/Axios

The Fed's latest survey of its business contacts around the country revealed a weakening labor market that could give the central bank grounds to ramp up its massive bond-buying program when its policy-setting committee meets later this month.

What happened: While most districts said they were still seeing a modest or moderate economic expansion, four districts described little or no growth.

Dan Primack, author of Pro Rata
7 hours ago - Technology

TikTok gets more time (again)

Illustration: Aïda Amer/Axios

The White House is again giving TikTok's Chinese parent company more to satisfy national security concerns, rather than initiating legal action, a source familiar with the situation tells Axios.

The state of play: China's ByteDance had until Friday to resolve issues raised by the Committee on Foreign Investment in the U.S. (CFIUS), which is chaired by Treasury secretary Steve Mnuchin. This was the company's third deadline, with CFIUS having provided two earlier extensions.

Federal judge orders Trump administration to restore DACA

DACA recipients and their supporters rally outside the U.S. Supreme Court on June 18. Photo: Drew Angerer via Getty

A federal judge on Friday ordered the Trump administration to fully restore the Deferred Action for Childhood Arrivals program, giving undocumented immigrants who arrived in the U.S. as children a chance to petition for protection from deportation.

Why it matters: DACA was implemented under former President Obama, but President Trump has sought to undo the program since taking office. Friday’s ruling will require Department of Homeland Security officers to begin accepting applications starting Monday and guarantee that work permits are valid for two years.

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