Will this time be different? Investors question the Treasury yield surge

Investors rotated out of Treasuries, a popular safe-haven asset, and into sectors that could benefit from an economic upswing such as bank stocks and high-yield credit after Pfizer said on Monday its experimental COVID-19 vaccine was more than 90 per cent effective.That sent the benchmark 10-year yield to its highest since March, edging close to 1 per cent, and the yield curve sharply steeper .

The eurodollar curve from 2022-2024, a proxy for the market's expectation of rate hikes, surged on Monday, noted Michael Purves, head of Tallbacken Capital Advisors. That was striking, he said, as it suggested a vaccine"may in fact be much more important in disrupting the Fed's 'zero forever' policy than fiscal stimulus might ever be."

There had been TLT bets"both ways" on Monday, he said, including a buyer of a call spread"looking for TLT higher and yields lower, saying that this is an over-reaction and things are not going to progress as quickly as the market is all of a sudden thinking." While a divided Congress is still likely to pass a coronavirus stimulus bill, investors say the amount may be smaller than was expected if there had been a broad Democratic victory.

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