The yield on the benchmark 10-year U.S. Treasury note rose above 1% for the first time since March, after returns from Georgia’s closely watched runoff elections fueled bets that Democrats will win narrow control of the Senate.

In recent trading, the yield on the benchmark 10-year U.S. Treasury note was 1.049%, according to Tradeweb, up from 0.955% at its 3 p.m. ET close Tuesday.

Democrat

Raphael Warnock

defeated incumbent

Kelly Loeffler

in one of the Georgia runoffs, according to the Associated Press. Democrat

Jon Ossoff

also held a small advantage in the other runoff, though that contest remained too close to call.

Yields, which rise when bond prices fall, started climbing on Tuesday evening as early returns from the elections started trickling in, showing tight races but promising signs for the Democratic candidates.

Wins in both races would effectively give Democrats 51 votes in the Senate—when counting the tiebreaking vote of Vice President-elect

Kamala Harris

—an outcome that many investors think would herald greater spending on pandemic-relief efforts and other Democratic priorities such as infrastructure projects. Democrats will also control the White House and the House of Representatives once President-elect

Joe Biden

is sworn in on Jan. 20.

Increased government spending without corresponding tax increases tends to push up Treasury yields partly because it portends more government borrowing and a larger supply of bonds. Depending on the type of spending, it can also drive yields higher by boosting economic growth and inflation and making it more likely that the Federal Reserve will raise short-term interest rates.

Democratic candidate Raphael Warnock is set to be the first Black American to represent Georgia in the Senate, as the AP declared him the winner of a close runoff election over Republican Sen. Kelly Loeffler. Which party will control the chamber is still to be determined. Photo: Raphael Warnock/YouTube

Long-term Treasury yields play a major role in the economy, helping set interest rates on everything from corporate bonds to mortgages. Over the past nine months, ultralow yields have simultaneously signaled skepticism about the economic recovery and helped bolster it by dragging down borrowing costs and pushing investors into riskier assets such as stocks and corporate debt.

The 10-year yield’s recovery to 1%, after collapsing to record lows early in the pandemic, now reflects a brightening, though hardly spectacular, economic outlook.

Back in March, the yield on the 10-year Treasury note fell below 0.4% on an intraday basis as investors first came to grips with the full implications of the coronavirus crisis. In recent months, the yield has climbed as investors first anticipated and then responded to the approval of coronavirus vaccines, which many hope can tame the pandemic by the middle of the year. It also got a boost when Congress passed a $900 billion spending measure last month that was designed to support the economy until vaccines are more widely distributed.

One sign of improving investor sentiment is that expectations for annual inflation over the next decade—derived from the difference between nominal and inflation-protected Treasury yields—climbed above 2% this week for the first time since 2018. That rate had fallen as low as 0.5% in March.

Just how high yields rise from here could depend on what Democrats could do with a slim Senate majority.

In a Wednesday morning report, analysts at Jefferies LLC wrote that they now assume that Congress will pass another $1 trillion of fiscal stimulus over the next few months. That, they wrote, should add around 2 percentage points to economic growth over the next two years, causing the Fed to raise interest rates in early 2023 rather than in 2024 and creating a real risk of a big selloff in Treasurys.

Others were more cautious.

“This is a blue ripple not a blue wave,” said

Mark Dowding,

chief investment officer at BlueBay Asset Management. The Democrats would need 53 Senate seats to pursue a more radical spending and policy agenda, but with only 50 or 51 seats President-elect Joe Biden would still face obstacles, he added.

Even with their recent increases, yields remain very low by historical standards. That is in large part because investors lived through a decade of slow growth and even-more tepid inflation after the 2008-2009 financial crisis, tempering their expectations for what the economy will look like even after it returns to more normal footing.

Other U.S. Treasurys apart from the 10-year note also sold off Wednesday, with the yield on the 30-year bond jumping to 1.833% from 1.705% Tuesday.

In Europe, government bond yields were also broadly higher, with the German 10-year bund rising to minus 0.553% from minus 0.584% on Tuesday.

Higher Treasury yields means some investors are likely to be selling lower-yielding European debt to buy U.S. bonds and capture that extra income, said

Peter Schaffrik,

a global macro strategist at RBC Capital Markets.

Write to Sam Goldfarb at sam.goldfarb@wsj.com and Joanne Chiu at joanne.chiu@wsj.com

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