- Biden era begins with Yellen pushing for a big aid package and saying there will be no near-term tax hikes
- U.S. homebuilder confidence expected to remain strong
- 20-year T-bond auction to yield near 1.65%Â
Biden era begins with Yellen pushing for a big aid package and saying there will be no near-term tax hikes — The U.S. stock market yesterday got some good news after Janet Yellen, in her confirmation hearing for Treasury Secretary, said that tax cuts would not be rolled back since President-elect Biden “does not want to raise taxes during the pandemic.”
That comment raised hopes that Democrats will not push for a corporate tax rate hike this year. However, tax hikes might still be on the agenda for 2022, assuming that the pandemic is over and the U.S. economy has largely returned to normal.
Ms. Yellen also gave her full support to Mr. Biden’s plan for a $1.9 trillion pandemic aid package. She said, “Right now, short term, I feel that we can afford what it takes to get the economy back on its feet, to get us through the pandemic.” She said she thought it would be a false economy to short-change pandemic aid.
She seemed to acknowledge, however, that certain pandemic aid measures are more efficient than others when she said that help for the unemployed and small businesses would provide the “biggest bang for the buck,” perhaps failing to mention a new round of stimulus checks on purpose.
The markets are waiting to see how much push-back there will be from Senate Republicans to Mr. Biden’s $1.9 trillion pandemic aid proposal. Leader McConnell fought tooth and nail against the last aid package and finally relented by allowing it to go up to $900 billion from his previous limit of $500 billion. Since then, the pandemic and the economy has worsened, but it will still be an uphill battle to convince Senate Republicans to go along with another big aid bill.
Mr. McConnell yesterday said that he would like to include an agreement to preserve the filibuster with the power-sharing agreement that he and Majority Leader Schumer will have to reach since the Senate seat count is tied at 50-50. Mr. Schumer likely doesn’t have the votes anyway to eliminate the filibuster since Democratic West Virginia Senator Manchin has already said he would not vote to eliminate the filibuster.
However, Democratic support for eliminating the filibuster might grow to unanimous levels once Democrats become frustrated by what is likely to be a Republican brick-wall on most of Mr. Biden’s proposed legislative initiatives. Mr. Schumer might find bargaining away the filibuster at this early date would amount to unilateral disarmament.
The markets are still waiting to see when the Senate will hold its trial for Mr. Trump’s impeachment and whether that will impinge on the Senate’s business of confirming cabinet members and getting started on the Biden agenda. Speaker Pelosi has not yet said when she will transmit the article of impeachment to the Senate, which would obligate the Senate to immediately begin an impeachment trial. After Mr. Trump’s first impeachment, Ms. Pelosi waited 27 days before transmitting the articles of impeachment to the Senate.
Democrats may have control of the Senate as soon as today when Biden-Harris are sworn in at noon, and Ms. Harris becomes the president of the Senate. The timing of Democratic control depends on when the three new members of the Senate are sworn in, i.e., incoming Senators Warnock and Ossoff from Georgia and incoming Senator Padilla, who is taking Kamala Harris’ former Senate seat. The Warnock-Ossoff campaigns yesterday said that they would be sworn in today at 4:30 pm ET.
Ms. Yellen yesterday also seemed to confirm that the Biden administration plans to take a tough line on China. Ms. Yellen said, “China is undercutting American companies by dumping products, erecting trade barriers and giving illegal subsidies to corporations.” The markets generally expect the Trump tariffs on U.S. companies that import Chinese goods to remain in place, unless there is eventually some larger U.S-China agreement that involves the removal of those tariffs and China’s retaliatory tariffs.
U.S. homebuilder confidence expected to remain strong — The consensus is for today’s Jan NAHB housing market index to be unchanged at 86, which is only 4 points below November’s record high of 90 (data since 1985). U.S. homebuilders remain very optimistic due to continued strong demand for new homes, tight supplies, and low mortgage rates. The supply of new homes on the market is extremely tight at 4.1 months, which well below the 5-year average of 5.5 months and just mildly above the record low of 3.5 months seen in August 2020. The current 30-year mortgage rate of 2.79% is just mildly above the recent record low of 2.65% posted in early-January.
20-year T-bond auction to yield near 1.65% — The Treasury today will sell $24 billion of 20-year T-bonds in the second and final reopening of the 1-3/8% 20-year T-bond of Nov 2040 that the Treasury first sold in November. The benchmark 20-year T-bond issue late yesterday was trading at 1.65%.
The Treasury just started selling the 20-year T-bond again in May 2020 for the first time since 1986. The 8-auction averages for the 20-year T-bond are as follows: 2.42 bid cover ratio, $2 million in non-competitive bids, 5.8 bp tail to the median yield, 31.8 bp tail to the low yield, and 46% taken at the high yield. The 20-year T-bond is mildly below average in popularity among foreign investors and central banks. Indirect bidders, a proxy for foreign buyers, have taken an average of 61.6% of the last eight 20-year T-bond auctions, which is mildly below the median of 63.1% for all recent Treasury coupon auctions.
