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A Biden stimulus deal could finally push bond yields higher

November 19, 2020. Summarized by summa-bot.

WILMINGTON, DELAWARE - NOVEMBER 16: U.S. President-elect Joe Biden delivers remarks about the U.S. economy during a press briefing at the Queen Theater on November 16, 2020 in Wilmington, Delaware. Mr. Biden and his advisors continue to work on the long term economic recovery plan his administration will try to put in place when he takes office. (Photo by Joe Raedle/Getty Images)

Bond yields are super low. That means it doesn't cost a lot of money to take out a loan, no matter if you're a consumer, business or the federal government. But yields have inched higher since the election. That may raise problems as the incoming Biden administration hopes to unveil more stimulus.

New York (CNN Business)Bond yields are super low.

But yields have inched higher since the election.

"We will be living in a low-growth and low-rate environment for many years to come," said Kent Insley, chief investment officer of wealth manager Tiedemann Advisors, in an interview with CNN Business.

The recent spike in bond yields is a good news/bad news scenario.

If rates resume their climb, especially if we get more fiscal stimulus from a Biden White House and Congress, that has the potential to reward income-starved bond investors.

If bond prices continue to drop and push yields up, that may give these investors more money in their pockets.

But here's the bad news: Higher yields also raise borrowing costs for companies and consumers.

"If yields rise too much, that could put a dent in the recovery. "

How much higher bond yields go is uncertain though.

"The excitement of a blue wave pushed bond yields higher but they've pulled back a bit due to possible gridlock.

That would eventually push bond yields higher.

"Yields are poised to move up eventually because you have to pay for this stimulus somehow," Goldman said.

More debt should lead to a weaker dollar and higher yields. "

Still, it may be difficult for yields to soar substantially as long as Fed chair Jerome Powell, who many believe will be nominated for a second term by Biden, continues to keep a lid on interest rates with easy money policies.

"Yields may climb a bit but don't expect them to move sharply higher from here.

The Fed intends to put a ceiling on long-term bond yields to keep the recovery going," said Adam Phillips, director of portfolio strategy with EP Wealth Advisors.

An increase in bond yields may also not be too troublesome as long as it is gradual and caused by an actual improvement in the economy as opposed to a temporary sugar rush from more stimulus.

"If the 10-year yield gets to 1. 25% and higher that could be a concern if it's mainly due to a lot more fiscal support.

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