US elections: Treasury yields rise on fears of rising deficit

A predominant view on strong selling of government debt American since the big interest rate cut of the Federal Reserve in September has been that investors no longer see the economy on the brink of a recession.

However, recently, the sale narrative also reflects a change in Wall Streetwith investors hedging against a possible “red wave” in the November elections, which would put power firmly in the hands of the Republican Party, including policies on taxes and public spending.

Two weeks before the election, the 10-year Treasury yield TMUBMUSD10Y rose about 60 basis points to 4.2% on Tuesday, a jump from a one-year low recorded in the days before the Fed’s first rate cut in four years.

Although most of the movement can be attributed to strong economic data in the last month and a half, election concerns have also played a role, he said. Mike Cudzilportfolio manager at Pimco, in an interview with MarketWatch.

Strong economic data reset the bond market as it forced investors to lower their expectations for significant rate cuts. However, higher bond yields also reflect “some more” of potential for Republicans to dominate the election, Cudzil added, noting that markets, for now, appear to “romanticize” a vision of a “red wave” that would be positive for stocks, but would also pressure longer duration yields by rise.

What analysts say

“Trump-related trades have continued to gain favor as markets have put their faith firmly behind the increasing odds of a Trump victory, even as polls still suggest a close race,” wrote Barclays equity researchers, led by by Anshul Gupta, in a note to clients on Tuesday. Their “Trump tariff baskets,” as well as 10-year Treasury yields, “have moved in line with the increasing odds of a Trump victory.”

“Obviously, the very strong labor market data reset expectations for Fed cuts,” Amar Reganti, fixed income strategist at Hartford Funds, said in an interview Tuesday. He pointed to a series of recent data that shows a more resilient economy than many anticipated, especially with interest rates still at historically high levels.

However, in mid-October, Reganti said markets have also tried to reflect how close the race has been in recent polls. “It’s not a dramatic move” Reganti said of the sharp rise in the 10-year yield, given the overall level of volatility in the rates market over the past year. “But it’s there, and it’s worth watching.”

Billionaire bets

Billionaire investor Paul Tudor Jones said Tuesday that regardless of who wins the November presidential election, he is avoiding fixed-income assets and betting against longer-duration U.S. bonds as he worries about the trajectory of debt. of the country.