Yields hit three-month high on election uncertainty, economy
By Karen Brettell
NEW YORK, Oct 23 (Reuters) -Benchmark 10-year Treasury yields reached a three-month high on Wednesday on uncertainty about the results of the Nov. 5 U.S. election and as investors adjusted for the likelihood the Federal Reserve will be less dovish due to the strong economy.
Yields have ratcheted higher this week and 10-year yields have broken above key technical levels, including the 200-day moving average and the 50% Fibonacci retracement from their April to September fall.
Some of the move has been attributed to rising odds that Donald Trump will win the U.S. presidential election, with policies including tariffs and crackdowns on illegal immigration seen as sparking higher inflation.
Betting site Polymarket shows a 64% chance of Trump winning and a 36% probability of a victory by Kamala Harris.
Many investors are also generally hesitant to buy bonds before the results of the election become clear, with the fiscal outlook also depending on whether one party wins a majority in Congress.
“It seems like a little bit of a buyer's strike going into the election, at which point I would expect a lot of money to be deployed,” said Dan Mulholland, head of rates – sales and trading at Crews & Associates in New York.
“Along with that has also been a lot of strong data, so it's kind of a rethinking of the Fed's terminal rate, where we're going to end up,” he said.
Benchmark 10-year note yields US10YT=RR were last up 3.8 basis points at 4.244% and earlier reached 4.248%, the highest since July 26.
Interest rate sensitive two-year yields US2YT=RR rose 1.7 basis points to 4.054%. The yield curve between two-year and 10-year yields US2US10=TWEB steepened by around one basis point to 18.8 basis points.
Traders priced out the likelihood of the U.S. central bank making further 50 basis point interest rate cuts following a much stronger employment report for September than was anticipated.
The market is now pricing in a 68.3% chance of a 25 basis point cut at both of the Fed’s November and December meetings, a 29.4% chance of a cut at only one meeting and a 2.2% odds the Fed will keep rates steady through year end, according to the CME Group’s FedWatch Tool.
U.S. economic data this week is relatively light, with investors waiting on key releases next week including the Nov. 1 jobs report for October for further clues on Fed policy.
The Treasury Department will sell $13 billion in 20-year bonds later on Wednesday and $24 billion in five-year Treasury Inflation-Protected Securities on Thursday.
Reporting By Karen Brettell; Editing by Sharon Singleton
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