What’s Fueling The Rise In U.S. Interest Rates?

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On the latest edition of Market Week in Review, Director and Senior Investment Strategist Paul Eitelman and Research Analyst Brian Yadao discussed the increase in U.S. interest rates as well as U.S. retail sales from January. They also chatted about the market implications of a new report on the effectiveness of the Pfizer COVID-19 vaccine after a single dose.

U.S. 10-year Treasury yield reaches the highest level of COVID-19 era

The most notable development in financial markets recently has been the rise in U.S. interest rates, Eitelman said, noting that the 10-year Treasury yield hit 1.33% on Feb. 19. “That’s the highest level in nearly a year,” he remarked, explaining that the upward movement is likely being propelled by two key factors.

The first of these is a sharper-than-anticipated reduction in the number of new COVID-19 infections in the U.S., the UK, and—to a lesser degree—continental Europe, Eitelman said. The decline in new cases has been a piece of positive fundamental news for the global economy, he noted.

The second, and arguably more important, factor pushing rates upward is an increase in expectations for a larger U.S. fiscal stimulus package, Eitelman said. “When President Joe Biden initially unveiled his fiscal stimulus plan on Jan. 14, the $1.9 trillion price tag seemed more like an aspirational figure. Now, one month later, it’s looking increasingly likely that it could become a reality,” he remarked.

The key reason why expectations have shifted toward a larger stimulus package is due to recent comments from a handful of centrist Democrats, such as Senator Joe Manchin of West Virginia, Eitelman said. In public remarks, Democrats like Manchin are no longer expressing disagreements over the size of Biden’s proposed bill, he explained. Rather, their issues of contention now revolve around smaller items in the bill, such as the proposal for a $15 federal minimum wage or the income threshold necessary for households to quality for $1,400 stimulus checks, Eitelman said.

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