Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

U.S. Election Jitters Flattening Treasury Yield Curve

By Investing.com (Darrell Delamaide/Investing.com)Market OverviewSep 29, 2020 04:56AM ET
www.investing.com/analysis/us-election-jitters-flattening-treasury-yield-curve-200539249
U.S. Election Jitters Flattening Treasury Yield Curve
By Investing.com (Darrell Delamaide/Investing.com)   |  Sep 29, 2020 04:56AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

There are complex trading strategies built around the yield curve, but analysts are finding a simple reason why the yield curve on US Treasuries is flattening. Investors are getting jittery about the presidential election in November.

The first debate between incumbent President Donald Trump and Democratic challenger Joe Biden on Tuesday, Sept. 29 has been preceded by a move into longer-term Treasuries. This has depressed the yield (bond yields move inversely to prices), and flattened the yield curve.

Election Uncertainty, Equity Headwinds To Pressure Long Bonds

The spread between 10-year and 30-year bond yields is a narrow 76 basis points, not much of a premium for going out another 20 years.

UST 30-Y:10Y Spread Weekly
UST 30-Y:10Y Spread Weekly

The 10-year Treasury is yielding 0.66% and the 30-year, 1.42%.

The shift by the Federal Reserve to tolerate more inflation before tightening monetary policy should lead to a steeper yield curve. The chances for stronger economic growth and higher inflation over the longer term increase as the Fed policy pushes the next interest-rate hike nearer to the 10-year mark.

But that steepening yield curve is not happening as the election draws near. Polls give Biden a decisive lead nationally, but voters have learned from 2016 that these projections can be misleading. For whatever reason, pollsters misread Trump’s support in that election and there is little evidence they have improved their reliability.

Another lesson from 2016 is that national polls can’t really say what will happen in the swing states—those states that are not reliably captured by one party or the other and can decide the Electoral College vote regardless of the popular vote.

Hillary Clinton had 3 million extra votes in California and topped the national popular vote, but that didn’t save her as swing states Florida, Michigan, Wisconsin, and Pennsylvania all swerved to Trump, sometimes by narrow margins, giving him that Electoral College majority.

State polls are, as a rule, even more unreliable than national polls, so the whole procedure is fraught with uncertainty.

UST 30Y Weekly
UST 30Y Weekly

Analysts at ING recently concluded that other risks in favor of a flattening yield curve—such as the political stalemate over more fiscal aid and a rising number of COVID cases—might normally fade, but election uncertainty will keep the pressure on 30-year yields. Headwinds in the stock market may further encourage investors to pile into the 30-year Treasuries.

Just how sensitive bond investors are to elections was evident in the reaction last week to regional voting in Italy. The right-wing Northern League of Matteo Salvini had been rising in the polls ahead of the two-day vote on Sept. 20-21, and there was speculation the party would score a breakthrough in the leftist fiefdom of Tuscany.

But the League fell short, failing to win Tuscany as well as two other big regions, Campania and Apulia, which remained in the hands of the center-left. The result posed no threat to the national government in Rome and investors were relieved.

Yields on the 10-year Italian bond dropped nearly 10 basis points, dipping below 0.83% from 0.92% before results came out while the spread to German 10-year narrowed to about 135 bps, a range not seen since February.

In the United States, there is a barrage of negative news on both sides as the race for the White House enters its final stretch.

Republican senators released a detailed report on the millions of dollars of deals in Ukraine and China won by Hunter Biden while his father was vice president, creating a perception of a conflict of interest even though a bipartison panel of senators found no evidence of wrongdoing.

The New York Times finally got hold of some of Trump’s tax returns and reported that he had paid little or no federal income tax in the period before his election to the White House.

And now the campaign is overshadowed by the Republican effort to confirm a new Supreme Court justice to replace the late Ruth Bader Ginsburg before the election. If Trump’s nominee, appeals court judge Amy Coney Barrett, lives to 87 as Ginsburg did, the lifetime court appointment would enable her to affect American jurisprudence for nearly four decades.

Will the Republican gambit to cement a conservative majority in the court help or hurt them in the election? Opinions are divided on that score.

Investors, in short, have plenty of reasons to remain jittery.

U.S. Election Jitters Flattening Treasury Yield Curve
 

Related Articles

Paul Rejczak
S&P 500: Is A 5% Correction Enough? By Paul Rejczak - Dec 03, 2021 1

The S&P 500 bounced from the 4,500 level on Thursday as it retraced most of its Wednesday’s sell-off. Was it a reversal or just another upward correction? The broad stock...

Kevin Beckman
Bitcoin Range-Bound As Volatility Ebbs By Kevin Beckman - Dec 03, 2021

Bitcoin keeps changing hands in a tightening range, with volatility in the cryptocurrency markets keeps fading this week. The BTC/USD pair is stuck between the 20- and 100-DMAs,...

U.S. Election Jitters Flattening Treasury Yield Curve

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email