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Wednesday, November 25, 2020

U.S. 10-year yield hits a 4-month high as Street bets on Biden

  • The Wall Street seems confident that Joe Biden will win in November 03 elections
  • Bond market recorded the second-largest inflows of $25.9 billion on a weekly basis earlier this month
  • A 10-year debt could rise up to 1.25% if Biden wins, analysts warn

The U.S. 10-year debt has jumped to 0.797% this week as the Wall Street bets on the Democratic presidential candidate Joe Biden to win the elections. 

Fundamental analysis: Wall Street betting big on Biden

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It seems that institutional investors are very confident that Joe Biden will win in November 03 elections.

“Our highest probability is of a Biden win and a Democratic sweep and that keeps increasing,” said John Briggs, head strategist at NatWest Markets in the U.S. 

“We had some client pushback on that idea but after the debate that turned around quite a bit”.

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Investors believe that Democrats, in case they win elections, will pass a huge stimulus bill. This belief helped U.S. Treasuries to break out of the range. 

“There’s a narrative in Treasuries that there’s a greater chance of a blue sweep, which means that a stimulus package will come January or February,” said Greg Staples, chief of fixed income at DWS Group.

According to BofA, the bond market recorded the second-largest inflows of $25.9 billion on a weekly basis. 

“Blue wave election outcome (Democrats winning) has curiously flipped from consensus bear to bull catalyst in recent months,” the bank said.

Bank’s analysts note that Government and U.S. Treasury bond funds posted inflows of $3.8 billion in the week to October 7. This is the highest number in over 3 months. 

Technical analysis: A fresh 4-month high

Yields on the benchmark 10-year Treasuries tose to nearly 0.80% this week to trade at the highest levels in last four months. According to NatWest’s Briggs, a 10-year debt could rise up to 1.25% if Biden wins.


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U.S. 10-year yield (TradingView)

“Our biggest concern isn’t the absence of fundamental backing for moderately higher rates; rather it’s the extent to which risk assets can weather an attempt to move into an environment with 10-year yields between 80-100 bp,” BMO strategists Ian Lyngen and Jon Hill wrote in a note.

The 100-DMA comes in at 0.91% while the 3-month high arrives at 0.95%.

Summary

The 10-year Treasury yield surged to June highs this week as traders continue to adjust their election bets. There’s a wide belief that Democrats win will pass a huge stimulus bill to help the embattled economy.

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