Bond Report: 10-year Treasury yield climbs above 200-day moving average on election day

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U.S. Treasury yields rose early Tuesday as investors returned to the theme that higher interest rates may follow the elections should the Democratic party win convincingly and pass another reflationary fiscal package.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 0.880% rises 2.2 basis points to 0.870%, moving beyond its 200-day moving average of 0.84%, while the 2-year note rate TMUBMUSD02Y, 0.164% edged 0.4 basis point up to 0.162%. The 30-year bond yield TMUBMUSD30Y, 1.661% climbed 2.8 basis points to 1.652%.

What’s driving Treasurys?

On election day investors are still assessing the likely results of a political contest that has the potential to usher days of uncertainty if a decisive outcome is not known immediately.

Yet a wide lead in the opinion polls by Democratic nominee former Vice President Joe Biden over incumbent President Donald Trump may mean the winner may be known relatively quickly.

Many market participants see another large financial aid package from Congress likely in the event the Democrats sweep both the White House and Congress, widening the fiscal deficit and boosting economic growth. Those prospects appeared to give a lift to bond yields on Tuesday.

See: Investors pine for a ‘clear victory’ — what’s at stake for markets in Trump-Biden election showdown

Indeed, assets vulnerable to a rise in higher interest rates came under pressure. Exchange-traded funds holding longer-maturity debt such as the iShares 20 plus year Treasury bond ETF TLT, +0.74% and the iShares iBoxx dollar investment-grade grade corporate bond ETF LQD, +0.39% saw steep outflows on Monday.

What did market participants say?

“Treasury signals to the broader financial market appear unreliable as capital and liquidity is sidelined until trader confidence about this week’s events is confirmed by stickier prices.  This morning, valuations are anything but sticky,” said Jim Vogel, an interest-rate strategist at FHN Financial.

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