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Some bond traders are preparing for an ‘interest rate shock’ after US Election Day



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On US Election Day, some market participants said that the world’s largest bond market could suffer a tantrum once the results are known.

Investors have largely come to consensus that the U.S. Treasury is ripe for post-election sell-off as Wall Street focuses on the prospect of another major financial aid package from Congress next year to help. support economic recovery from the coronavirus pandemic.

The uncertainty surrounding election results has been believed to have pushed bond yields to their highest level in more than three months, analysts say, but they could still be higher.

“We expect a higher interest rate shocker on the outcome though
Tom di Galoma, chief executive of the treasury bond trading division at Seaport Global, said.

10-year Treasury bond TMUBMUSD10Y,
0.892%
has come under pressure on election day, surpassing its 200-day moving average. The standard maturity rate was 0.88% on Tuesday, the highest level in five months.

See: This is why the prospect of a Democratic sweep in November’s elections is stirring up the US bond market is sleepy.

Ian Lyngen, head of US interest rate strategy at BMO Capital Markets, says that a strong sell-off in the bond market will have clear conditions for decisive election results.

If the vote count goes smoothly and quickly, 10-year yields could breach the key 1% level, he said.

But if the results remain “vague” on Wednesday morning, the risky asset will quickly reduce this week’s gains while consolidating bonds and other haven assets.

S&P 500 SPX Index,
+ 1.78%
has risen more than 3% in the past two days amid hopes for a clear election result, based on opinion polls that show the former Vice President ahead of incumbent President Donald Trump. The bounce helped stocks bounce back from a 5.6 percent drop last week.

Read: What the Trump-Biden election war means for markets as investors seek a ‘clear win’

Bond traders may be reluctant to take part in bearish bets, however, with the Federal Reserve meeting this week.

The US central bank will meet on Wednesday and Thursday and although no new policy measures are expected, market participants say the Fed may pave the way to regulate asset purchases. I want to buy bonds with longer maturities, this would be a test for a big sell-off on the Treasury market. .

Payment procedures: This week will be full of important insights into the US economy and the Fed’s decisions overshadowed by the election.


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