U.S. Treasury yields broke above 1% for the first time since the pandemic-driven turmoil in March, and the sell-off may only have just begun should the Democrats secure control of the U.S. Senate.
The 10-year yield, a key global benchmark interest rate, at one point surged close to 10 basis points to more than 1.05% as Democratic victories appeared likely in both Senate runoff elections in Georgia, paving the way for more spending to revive the U.S. economy. Long-bond rates, meanwhile, were on track for their biggest one-day jump since March's pandemic-related turmoil and investors have already started to dust off reflation trades in anticipation of a so-called blue sweep.
"The result will certainly be seen as a driver of higher Treasury yields," said James Athey, a money manager at Aberdeen Standard Investments. "The reflation trade has already been sparked. The question really is how much further the Senate result will push that."
Should 10-year yields climb higher from 1%, investors said it could spark a domino effect across asset classes if the increase is accompanied by economic recovery and moderate levels of inflation. A gauge of the dollar approached the lowest level since 2018 and most commodity prices rose.
The spread between 5- and 30-year bond yields hit its steepest level since November 2016, when Donald Trump's election sparked trades premised on stronger growth and higher inflation.