By Sebastian Pellejero

U.S. government bond yields rose Monday despite a decline in stocks, marking their sixth-consecutive session of gains after logging the biggest one-week increase since June.

The yield on the benchmark 10-year Treasury note, which rises when bond prices fall, finished Monday's trading session at 1.131%, according to Tradeweb. That is up from 1.105% at Friday's close.

The climb extended even as U.S. stock indexes fell, a break from the usual relationship between stocks and bonds. Investors tend to buy government bonds when they are worried about the economy and don't want to hold riskier assets like stocks.

Driving yields higher in recent sessions: increased investor expectations for new stimulus measures later this year after Democrats won control of the Senate during last week's runoff elections.

The 10-year yield rose above 1% for the first time since March after last week's election results, marking a notable recovery from record lows reached early in the pandemic, when stocks plunged and investors fled to the safety of government bonds.

The rollout of vaccines and a December $900 billion economic relief package have lifted investor confidence, pushing them toward riskier assets. Such spending can drive yields higher by boosting economic growth and inflation, making it more likely that the Fed will raise short-term interest rates.

A Democratic victory last week raises the chances of even more stimulus. Citibank analysts now forecast around $600 billion in additional relief spending early in the second quarter, while Bank of America says a new, near-term bill could total up to $1 trillion. Yields tend to rise in anticipation of increased government spending without corresponding tax increases, because it portends more borrowing and a larger supply of Treasury bonds.

The Federal Reserve has pledged to hold rates low for the immediate future, but the combination of new stimulus and signs of economic recovery suggest the central bank may not increase its own stimulus to counteract the recent climb in yields, says Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. Central bank officials didn't see a strong case to boost asset purchases at their December policy meeting, according to recently released minutes.

"The Fed doesn't sound like it's keen to backstop the market any time soon," Mr. Goldberg said. "They are OK with nominal rates adjusting higher because real interest rates are so low."

It will still take years for the entire U.S. economy to recover to pre-pandemic levels, says Jim Vogel, interest rates strategist at FHN Financial, and it is not clear how much new stimulus money would be spent. The U.S. personal savings rate in November remained above pre-pandemic levels at 12.9%, according to data from the U.S. Bureau of Economic Analysis.

"The Fed sees no impact on their plan for the economy right now based on nominal yields because there is still so much money on the sidelines," he said.

The rise in yields comes ahead of notable Treasury auctions this week. The Treasury Department sold a record $58 billion in three-year notes Monday. The three-year auction is followed by sales of $38 billion in 10-year notes Tuesday, and $24 billion in 30-year bonds Wednesday, which should provide a gauge of market sentiment.

"The 10-year and 30-year auctions are the big litmus tests of demand," said Mr. Goldberg. "Some investors think these are great levels to buy the dip. Others are thinking this is not the bottom."

Write to Sebastian Pellejero at sebastian.pellejero@wsj.com

(END) Dow Jones Newswires

01-11-21 1642ET