Stocks climb, bonds fall after Democrats win Senate

Bond prices dropped and stocks hit record highs on Thursday as investors bet Democratic control of the U.S. Congress would enable President-elect Joe Biden to borrow and spend heavily, while higher yields helped a bruised dollar recover from near three-year lows.

The bullish sentiment remained throughout the day even as the top two Democrats in Congress called for President Donald Trump to be removed from office, one day after his supporters stormed and vandalized the U.S. Capitol in a rampage that left four people dead.

U.S. Treasuries prices extended their steepest sell-off in months, with the benchmark yield at its highest in 10 months. Victories in two Georgia races handed the Democratic Party narrow control of the U.S. Senate, bolstering Biden’s power to pass his agenda with his party controlling both chambers.

The MSCI world equity index, which tracks shares in almost 50 countries, rose more than 1% to hit a record high for the third session this week.

After a shaken Congress formally certified Biden’s election victory in the early hours of Thursday, Wall Street focused on the implications of the Democrats’ control of Congress. Major indexes hit record highs on bets that more pandemic stimulus will help the economy ride out the downturn.

“The market is now looking past Trump and it’s looking forward to a Biden presidency, more structure and stimulus,” said Dennis Dick, a trader at Bright Trading LLC.

“A Democratic Congress is going to obviously be more concerned about the small businesses, and the Main Street.”

The Dow Jones Industrial Average rose 211.73 points, or 0.69%, to 31,041.13, the S&P 500 gained 55.65 points, or 1.48%, to 3,803.79 and the Nasdaq Composite added 326.69 points, or 2.56%, to 13,067.48.

The pan-European STOXX 600 index rose 0.51% and MSCI’s gauge of stocks across the globe gained 1.18%. Emerging market stocks rose 0.53%.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan had risen 0.35% and Japan’s Nikkei hit its intraday highest since 1990 before ending up 1.6%.

The prospect for future stimulus spending sent bond prices lower, with the yield on the benchmark hitting its highest since March. It rose as high as 1.088% on Thursday.

“The Georgia Senate elections just added a tailwind to existing trends of reflation and upward pressure on Treasury yields,” said Bill Merz, head of fixed income research at U.S. Bank Wealth Management in Minneapolis.

Benchmark 10-year notes last fell 12/32 in price to yield 1.0812%, from 1.042% late on Wednesday.

The 30-year bond last fell 27/32 in price to yield 1.859%, from 1.821%.

BRUISED DOLLAR
The Democrats’ victory also reverberated in currency markets.

The dollar had sunk to a near three-year low against a basket of six major currencies, with traders betting growing U.S. trade and budget deficits would further weigh on the greenback.

On Thursday, it rose 0.549%, on track for its strongest session since at least late October, with the euro down 0.02% to $1.2268.

The Japanese yen strengthened 0.01% versus the greenback at 103.78 per dollar, while Sterling was last trading at $1.3564, up 0.01% on the day.

“Once (Treasury yields) start to move, as they did yesterday, it wasn’t a big move but it was in the right direction, that is the direction of the future,” said Joseph Trevisani, senior analyst at FXStreet.com.

Oil prices touched their highest since late February as markets remained focused on Saudi Arabia’s unexpected pledge to deepen its oil cuts.

U.S. crude recently rose 0.57% to $50.92 per barrel and Brent was at $54.57, up 0.5% on the day.

Spot gold % to $1,913.07 an ounce. Silver gained 0.19% to $27.16.

Bitcoin hit a record high that breached the $40,000 mark, and was last up 7.05% at $39,446.75.