In a week full of macro data that will be defining for the Federal Reserve, the volatility experienced in the markets is added due to the proximity to the US elections.
The yield on the US 10-year Treasury bond climbs this Tuesday to 4.3% and brand new highs since last July as the US presidential elections and the market faces a week full of macro data that will be decisive for the evolution of the monetary policy of the Federal Reserve (Fed).
The US central bank will meet on November 7 and investors discount, with a probability of 96.4%, according to the CME Group’s FedWatch tool, which will cut interest rates againbut at a lower intensity (25 basis points).
The strength shown by the US economy supports this movement and the next few days will be key, since the situation of the labor marketnew concern of the Fed, and the PCE consumption deflatorthe agency’s preferred inflation measure, without forgetting the Third quarter GDP.
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Volatility in the markets in the run-up to the US elections
The proximity of the US elections and the uncertainty around whether Kamala Harriscandidate of the Democratic Party, or donald trumpcandidate of the Republican Party, generates volatility in the markets.
For experts at Link Securities, there are two factors behind Western bond yields soaring upwards. On the one hand, “the fact that the US economy and the country’s labor market continue to be much stronger than anticipated, which could lead the Fed to slow the pace of rate cuts“.
On the other hand, “the fact that two candidates for the US presidencyformer President Trump and Vice President Harris, have shown in their proposals quite fiscal indisciplinewhich would increase the country’s public deficit and the already very bulky debt that supports this economy.
In this sense, for Manuel Pinto, market analyst, investors are pricing in a Trump victory. “Treasury bond prices have plunged over the past month, as the strength of the economy calls into question the extent to which the Fed will cut interest rates in the coming months. The presidential election has increased uncertainty, and Some investors speculate that a Donald Trump victory will push yields higherin the expectation that His tax and tariff cuts will fuel inflationary pressures and they will keep rates high.
Source: Ambito
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