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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
Jan 28, 2021 - Economy & Business

U.S. indexes see worst day since October amid short squeeze chaos

Photo: Angela Weiss/AFP via Getty Images

Equity prices tumbled Wednesday, with U.S. indexes booking their worst day since October, but traditional hedging assets like Treasury bonds, the Japanese yen and gold saw minimal gains or losses, continuing a trend that has been in place for more than a year.

By the numbers: The S&P, Dow and Nasdaq all fell by more than 2%, but the benchmark 10-year U.S. Treasury yield declined by just 1 basis point from its closing level on Tuesday.

Dave Lawler, author of World
29 mins ago - World

Americans increasingly see China as an enemy

One in three Americans, and a majority of Republicans, now view China as an enemy of the United States, according to a new survey from Pew Research Center.

By the numbers: Just 9% of Americans consider China a "partner," while 55% see Beijing as a "competitor" and 34% as an "enemy."

Scoop: Leaked HHS docs spotlight Biden's child migrant dilemma

A group of undocumented immigrants walk toward a Customs and Border Patrol station after being apprehended. Photo: Sergio Flores/The Washington Post via Getty Images

Fresh internal documents from the Department of Health and Human Services show how quickly the number of child migrants crossing the border is overwhelming the administration's stretched resources.

Driving the news: In the week ending March 1, the Border Patrol referred to HHS custody an average of 321 children per day, according to documents obtained by Axios. That's up from a weekly average of 203 in late January and early February — and just 47 per day during the first week of January.

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