Vaccine news boosting markets
Pfizer’s announcement has had a major effect on global markets.
The much-better-than-expected news from Pfizer this morning on the 90% efficacy of its vaccine has had a massive impact on global markets and seems biased to keep U.S. Treasury yields higher than pre-election ranges. Covid-19 is very much a problem, as cases are rising globally, but markets are apt to look forward through the challenges as progress occurs toward vaccination. Complexity and timing in distribution of the vaccine and prospective setbacks remain challenges but they don’t seem likely to change the trajectory of vaccine progress.
Although the election is not finalized, the prospect of a credible legal strategy that could overturn the presidential election results are very low. Divided government still seems to be the most likely outcome (even with the runoffs for both Georgia Senate seats), leading to more moderate policy outcomes relative to what would have occurred in a Blue Wave. Most importantly, election risk is declining.
Over coming months, we believe the 10-year yield is likely on its way to around 1.25%. The Federal Reserve may get involved to counter rising yields by altering quantitative easing (QE) at some point, but the thresholds that would motivate such actions likely are higher than current levels.