NEW YORK- Benchmark 10-year US Treasury yields hit a nearly four-month high on Tuesday on investor wariness to buy the debt before next week’s US elections, but dipped later in the day after a strong seven-year note auction.
Betting markets show Republican former President Donald Trump as the favorite to win the Nov. 5 presidential election, which could also put Republicans in control of Congress.
“The bond market is attaching a higher probability of a Trump victory,” said Thierry Albert Wizman, global rates and FX strategist at Macquarie in New York.
The US budget deficit is expected to worsen under a presidency held by Trump or Vice President Kamala Harris, though Trump policies including tariffs and tax cuts are seen as being more likely to stoke inflation and lead to a bigger deficit.
“The market seems to not want to take the risk at this point of the prospect of higher deficits and bond issuance over the next few years under the policy agenda of President Trump,” Wizman said.
Interest rate option traders are placing trades that will pay off if rates remain elevated, suggesting that the market is pricing in a sweep by the Republican party. The options market is also bracing for the biggest post-election swings in US Treasury yields in more than 30 years.
