Update: shortly after 2pm, with neither they party making any headway in its own stimulus proposal, Democrats Pelosi and Schumer announced they back the $908 billion bipartisan plan (profiled below) as the foundation for future negotiations.
"In the spirit of compromise, we believe the bipartisan framework introduced by Senators yesterday should be used as the basis for immediate bipartisan, bicameral negotiations" the top House and Senate Democrats said. "Of course, we and others will offer improvements, but the need to act is immediate and we believe that with good-faith negotiations we could come to an agreement."
While it remains unlikely that Mitch McConnell will agree to the Bipartisan plan, news that Democrats have made a tentative compromise and have lowered their (initial) funding needs to just above $900 billion was enough to send 10Y yields surging...
... and Breakevens rose even higher on the day, the highest since May 2019 amid growing hopes that some deal may just emerge.
* * *
Following yesterday's reflationary frenzy driven by optimism that a fiscal stimulus deal was (again) just around the corner, markets have realized that despite overtures by both parties, Republicans and Democrats still remains far apart on a compromise, even a "mini" targeted deal which leads to something bigger next year.
For those who missed the Tuesday action, House Speaker Nancy Pelosi and Schumer presented a new stimulus proposal to McConnell and Treasury Secretary Steven Mnuchin, though they inexplicably refused to release details. McConnell responded by circulating his own plan to fellow Republicans, saying it had the blessing of President Donald Trump. While he labeled it a new proposal, an outline distributed to GOP senators showed it was largely a revision of an earlier $500 billion plan that had been rejected by Democrats as inadequate. At the same time, a bipartisan group of lawmakers from the House and Senate offered a $908 billion compromise package, which so far hasn’t been embraced by leaders in either party.
So picking up where we left off yesterday on Wednesday, House Majority Leader Steny Hoyer said that House and Senate leaders are striving for a deal on a pandemic relief package by the weekend to set up votes by the middle of next week. The Maryland Democrat said he talked with Senate Majority Leader Mitch McConnell on Monday and they agreed "it would be optimal if we could get to an agreement by this weekend"; and while he acknowledged that timetable was optimistic, he said the recent flurry of proposals on a compromise offer “positive steps” forward for the long-stalled negotiations. Hoyer also said the continued spread of the coronavirus across the country - which explains why reports of covid's spread did not fade away after the election - is adding urgency to efforts to wrap up congressional business so members can return home and safely quarantine before the holidays.
Alas, despite the "optimistic" rhetoric, both sides continue be hold to some of the earlier positions that left negotiations at a standstill. They again accused each other of putting partisanship ahead of compromise, and it was unclear on Wednesday whether Democrats and Republicans have moved far enough to provide a breakthrough according to Bloomberg.
Case in point, Senate Democratic leader Chuck Schumer showcased the dividing lines this morning when he blasted McConnell's latest plan as "another inadequate partisan proposal." Meanwhile, McConnell showed no sign of budging in remarks on the Senate floor reiterating the need for a "targeted" approach for any new stimulus. Schumer separately highlighted Democratic opposition to liability limitations for businesses over Covid-19, something that’s been a priority for McConnell.
"The latest Republican offer on Covid will include immunity for corporations who put their workers at risk from Covid but not a dime for workers who lost their jobs because of the pandemic," Schumer said. “The Republican leader should not waste the Senate’s time on another inadequate partisan proposal and instead should sit down with Democrats to begin a true bipartisan effort to quickly meet the needs of the country."
Also on Wednesday, Mnuchin told reporters Wednesday that he had spoken "briefly" with Pelosi Tuesday about her new pitch, but declined to offer public comment on it. He said that he didn’t plan to speak with her again Wednesday. Asked what Trump will sign, Mnuchin said Trump favors the approximately $500 billion McConnell plan. Prior to losing the election, Trump said he wanted more than $2.2 trillion in stimulus.
Meanwhile, also on Wednesday, during the second day of Mnuchin and Powell's testimony in Congress, this time before the House, the duo continued to call for additional fiscal support for the economy. Mnuchin said he would spend more time reviewing yesterday’s $908 billion bipartisan proposal but said he looked forward to making progress on Senate Majority Leader Mitch McConnell’s much smaller plan.
Mnuchin and Powell agreed that help for small businesses is a top priority. Mnuchin made a direct appeal for permission to use unused Cares Act Money to revive the Paycheck Protection Program. Powell went further by also appealing to lawmakers to support aid for state and local authorities, a step Republicans have rejected.
Even as Congress sturggles to pass even a targeted bill, it faces other hurdles: over the next 10 days, Congress also has to deal with passing a $1.4 trillion annual spending bill to fund government operations. The U.S. government has been working under a stopgap measure since the fiscal year began on Oct. 1. That expires Dec. 11, and missing the deadline would trigger a partial government shutdown.
Missouri Republican Senator Roy Blunt said getting the spending bill finished is key to getting other legislation wrapped up, including any pandemic relief: "If we get it done, it opens the potential door for other things," Blunt said.
Congressional leaders also are moving to bring the annual defense authorization bill for a vote despite Trump threatening to veto it unless Congress abolishes a law that protects technology companies from liability over most user content.