By Stephen Culp

NEW YORK, Oct 7 (Reuters)U.S. stocks rebounded to close sharply higher on Wednesday after incremental stimulus proposals helped investors recover from the shock of President Donald Trump’s announcement on Tuesday that he would halt stimulus talks until after the Nov. 3 election.

Increased risk appetite also resulted in weaker Treasury prices and a steepening yield curve as markets were heartened that at least some fiscal aid measures to help an economy battered by the coronavirus pandemic were still on the table.

While White House Chief of Staff Mark Meadows said he was “not optimistic for a comprehensive deal,” Trump appeared to relent somewhat, urging Congress to pass a $25 billion airline bailout, a move also supported by U.S. House of Representatives Speaker Nancy Pelosi.

In separate Twitter posts, Trump also expressed willingness to approve sending stand-alone $1,200 relief checks to Americans and urged Congress to approve the $135 billion payroll protection program for small businesses.

“Investors grow optimistic when there is any type of stimulus, whether it’s a large package or more discrete,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta. “There’s interest on both sides in having some kind of stimulus as the election approaches.”

“The most important issue for them is who gets to take credit for it,” Sroka added.

The U.S. Federal Reserve released the minutes from its latest monetary policy meeting, which revealed many members of the Federal Open Market Committee said their economic outlook assumed additional fiscal support, and if a stimulus package from Congress was too small or came later than expected, the economic recovery could be slower than anticipated.

This echoed Fed Chair Jerome Powell’s warning on Tuesday that the economic recovery would slip into a downward spiral if Congress fails to provide additional fiscal

By Stephen Culp

NEW YORK, Oct 7 (Reuters)U.S. stocks bounced back in a broad rally on Wednesday as investors recovered from the shock of President Donald Trump’s announcement that he intended to halt stimulus talks until after the election, and were relieved that pandemic relief could be passed incrementally.

The risk-on mood was also reflected in weaker Treasury prices and a steepening yield curve as markets were heartened that at least some fiscal aid measures were still on the table, a day after Trump’s tweet sent markets into a nosedive.

While White House chief of staff Mark Meadows said he was “not optimistic for a comprehensive deal,” Trump relented somewhat, urging Congress to pass a $25 billion airline bailout, a move also supported by U.S. House Speaker Nancy Pelosi.

In another tweet on Wednesday, Trump also urged Congress to approve the $135 billion payroll protection program for small businesses.

“If you can’t agree on an overall package but there are elements that you can agree on go ahead,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“Two elements that are needed are some kind of bailout for the airline industry, and additional aid to allow people to pay bills and buy groceries,” Tuz added. “Those are things that are unequivocal and agreed on by both sides.”

The U.S. Federal Reserve released the minutes from its latest monetary policy meeting, which revealed many members of the Federal Open Market Committee said their economic outlook assumed additional fiscal support, and if a stimulus package from Congress was too small or came later than expected, the economic recovery could be slower than anticipated.

This echoed Fed Chair Jerome Powell’s warning on Tuesday that the economic recovery would slip into a downward spiral if Congress fails to

(Bloomberg) — Fast-money wagers against longer-dated Treasuries have hit a record in a sign hedge funds are positioning themselves ever more aggressively for a steeper yield curve.

Net short speculative positions in long bond futures saw the biggest weekly climb since 2007 to reach around 209,000 contracts, according to the latest Commodity Futures Trading Commission data. Meanwhile, net long positions on 10-year Treasuries have risen to their highest since October 2017.

So-called steepener trades are often seen as bets on reflation, while investors are also positioning for the possibility of greater deficits should the Democratic party prevail in November’s election. A new Wall Street Journal/NBC News poll taken after Tuesday’s debate showed Joe Biden leading Donald Trump by 14 percentage points. It was taken before the president was diagnosed with coronavirus.



chart: Speculators long bond positions at record net-short as 10-year yields bets climb


© Bloomberg
Speculators long bond positions at record net-short as 10-year yields bets climb

The surge in shorts appears to be related to new wagers on the direction of the curve, rather than so-called basis trades which bet on the spread between bonds and futures, according to JPMorgan Chase & Co. strategists including Jay Barry.

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“We think curve positioning could be behind those moves,” they wrote in a note to clients Friday. “While outright exposure to duration positions are not large, curve steepening positions remain large relative to historic ranges, and the risk is these trades could be unwound.”

The spread between the 10-year and 30-year yields has widened by more than 30 basis points so far this year and was at around 79 basis points on Monday. It reached near 81 basis points in June, the year-to-date high.

Big Risk for Bonds Is That U.S. Election Actually Goes Smoothly

Similar bets are also being made in the swaption market. Options on swap rates show the cost