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“Trump deals” unfold as US yields fall heading into the election

Online Niel November 5, 2024

Gertrude Chavez-Dreyfuss
| Reuters

NEW YORK, Nov 4 (Reuters) – U.S. Treasury yields fell on Monday as traders divided their positions ahead of Tuesday’s presidential election due to a new poll showing Democratic vice presidential candidate Kamala Harris with a surprise lead in Iowa over former Republican President Donald Trump.

In afternoon trade, the benchmark US 10-year yield fell 6.6 basis points (bps) to 4.297% US10YT=RR, on track for its biggest daily decline in two months.

At the short end of the curve, the two-year US Treasury yield fell for the first time in six days, down 3.7bps to 4.166% US2YT=RR. That was on pace for its biggest one-day decline in about three weeks.

However, Treasury yields pared losses after an auction of three-year U.S. notes at higher-than-expected prices, suggesting market participants demanded a premium to get the note out. The result was expected, analysts said, given the uncertain environment surrounding Tuesday’s election, leaving many market players on the sidelines.

“The bond market is trying to position itself ahead of the election in terms of who it feels is going to win. The only thing that came out was less direction toward Trump and more direction toward Harris,” said Jim Barnes, the director of fixed income. at the Bryn Mawr Trust in Berwyn, Pennsylvania.

“We had a reassessment of yields … that comes from economic data coming in better than expected. Yields are certainly positioned to take a break, but that catalyst for them to go the other way has been triggered. by investors’ expectations about the results of the presidential election,” Barnes added.

U.S. yields have risen in recent weeks as investors traded bets that Trump could be president again.

The current market consensus is that Trump’s policies on immigration, tax cuts and tariffs would put upward pressure on inflation, bond yields and the dollar. The benchmark 10-year yield has risen about 57 bps since early October.

Part of that rise in yields was due to economic data that came in better than many had feared, prompting markets to price in expectations of the Federal Reserve’s rate cut trajectory.

However, analysts at JPMorgan said about 21 basis points of the recent move higher in 10-year yields was explained by expectations that Republicans could win the presidency and both houses of Congress.

The weekend poll showed Harris leading Trump 47 percent to 44 percent in Iowa, a state that has leaned deeply Republican in recent years. The poll has a margin of error of 3.4 percentage points. Other polls show the race is tight in the seven battleground states expected to decide the outcome.

Fed meeting this week

The Federal Reserve will meet this week with a 25 basis point cut expected at the end of its two-day meeting on Thursday. But the Fed has become an afterthought, with the bond market more focused on the election.

“I think a lot of positions in bond portfolios have been reduced in the face of potential volatility around the election,” said Brendan Murphy, head of fixed income, North America at Boston-based Insight Investment, which has assets under management. 838.1 billion dollars.

Elsewhere, US 30-year yields fell 7.2 bps to 4.486% US30YT=RR.

US three-year yields fell 4bps to 4.139% US3YT=RR after a soft tender in the shorter-dated note. The three-year note was priced at 4.152%, higher than market expectations at the auction deadline. It was also the highest yield since July.

Direct bidders took just 9.6% of the supply, more than a third of the previous auction’s 24% and about half the average of 18.6%, according to Action Economics.

Meanwhile, the US yield curve flattened with the spread between two-year and 10-year yields at 13.1 bps US2US10=TWEB, down from 17.2 bps on Friday, and causing the curve to tilt in the last time. a few weeks.

A bull flattening is a scenario where longer-term rates fall faster than shorter-dated maturities, which may reflect flight-to-safety trades with the election due on Tuesday.

On Tuesday, the US Treasury will auction $42 billion in 10-year notes. The Treasury, in last week’s repayment announcement, said it did not anticipate increasing the size of auctions for notes and bonds for at least the next few quarters.

Polymarket Picks Odds – minute by minute https://reut.rs/3NVba7M

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Report by Gertrude Chavez-Dreyfuss; Additional reporting by Alun John in London; Editing by Amanda Cooper and Will Dunham