Treasury Yields Near Highest Since May Amid First Vote Resultsby
Treasury 10-year note yields were near the highest level since May in early Asian trading as traders weighed the first results in the U.S. presidential election.
There were no early surprises as television networks and the Associated Press called the first states, with Republican Donald Trump winning Indiana and Kentucky and Democrat Hillary Clinton gaining Vermont’s electoral votes. A Bloomberg News survey of primary dealers showed respondents forecast Treasury yields to rise if Clinton wins and tumble if Trump is the victor.
“The market is so focused on this election that you have to acknowledge the relevance of these small bits and pieces of election data as they come in, even as they may not be meaningful,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, one of 23 primary dealers that trades with the Federal Reserve.
Benchmark Treasury 10-year notes yielded 1.87 percent as of 9:37 a.m. in Tokyo on Wednesday, according to Bloomberg Bond Trader data. The price of the 1.5 percent security due in August 2026 was 96 3/4. The yield climbed to 1.88 percent on Nov. 1, the highest level since May 31.
A victory for Clinton is seen sending Treasuries lower as there would be less demand for haven assets because it would reduce the chance of financial-market turmoil. That outcome would give the Federal Reserve a clearer path to raise interest rates. The opposite would likely be the case if Trump is victorious.
Traders assign about an 86 percent probability to a Fed interest-rate increase by its December meeting, according to data compiled by Bloomberg based on swaps, compared with 78 percent odds on Monday.
“Clinton is the known quantity -- we know what she intends to do, she’s published a very detailed platform,’’ said Gennadiy Goldberg, an interest-rate strategist in New York at TD Securities (USA) LLC, a primary dealer. “A Trump victory is generally expected to be a risk-off event. There are a lot of unknowns and it’s expected to be widely negative for risk sentiment.”
A gauge of investor demand for U.S. government securities fell to match the lowest level since 2009 at a $24 billion Treasury three-year note auction on Tuesday.