US Treasury yields rose sharply on Election Day, driven by strong economic data and heightened uncertainty surrounding the outcome of the presidential race as detailed in a report by Bloomberg.

A strong report on the US services sector, showing the fastest growth in over two years, added to market volatility ahead of Thursday’s Federal Reserve policy meeting. The upbeat economic numbers dampened expectations for future rate cuts, with strategists now predicting a more prolonged period of higher rates, the Bloomberg report explained further.

The two-year Treasury yield reached a multi-month high of 4.24 per cent, while the 10-year yield rose by as much as eight basis points to 4.36 per cent, nearing a three-month high.

Further, this uptick in yields came despite a strong auction of $42 billion in 10-year Treasury notes, which drew solid demand at a yield of 4.347 per cent, slightly below market levels. However, the overall bond market remained jittery, with most yields remaining higher on the day as investor concerns about Fed policy and election outcomes mounted.

Bond market volatility spiked to levels not seen in over a year, as traders braced for turbulence regardless of the election result. The ICE BofA MOVE Index, which tracks expected Treasury yield fluctuations, closed at its highest level since October 2023. As the election results approach, options on Treasury futures implied the potential for a 22-basis point swing in 10-year yields by week’s end, the largest such move since 2012.

Bond markets are primed for significant price adjustments <o:p></o:p>

John Higgins, Chief Market Economist at Capital Economics, highlighted the potential for significant price adjustments in the bond market following the election. "While we expect some re-pricing in bonds once the election outcome is clear, it’s uncertain whether the market will see the extreme moves that investors are currently anticipating," he noted.

With the presidential race deadlocked between former President Donald Trump and Vice President Kamala Harris, markets are particularly sensitive to potential shifts in policy. A Republican win could mean a return to pro-growth policies, fuelling inflationary pressure and increasing the deficit, which could push Treasury yields even higher. Conversely, a victory for Harris, representing the Democrats, could dampen yields, as investors price in more cautious fiscal policy.

Tom di Galoma, head of fixed income at Curvature Securities, anticipates the 10-year yield could rise to 4.75 per cent or even 5 per cent post-election, given the expected push for economic expansion. The strong October services data, showing a surge in hiring, only added to speculation that the Fed may need to maintain higher rates for longer. Swaps traders are pricing in a high likelihood, over 90 per cent of a 25 basis point rate cut at the Fed’s meeting this week.

In the currency markets, the US dollar fell slightly, while currency volatility surged. The cost of hedging the euro against the dollar reached its highest level in over four years, as traders adjusted to the heightened risk in global markets. With recent polls showing a narrow race between Trump and Harris, investors are pricing in significant uncertainty in both Treasury and currency markets, preparing for further swings regardless of the election outcome. 

Overall, the combination of economic strength, an unpredictable election outcome, and Fed rate expectations has resulted in the highest levels of bond volatility in over a year, setting the stage for a potentially volatile week in financial markets.

US Treasury yields rose sharply on Election Day, driven by strong economic data and heightened uncertainty surrounding the outcome of the presidential race as detailed in a report by Bloomberg.

US Treasury yields rose sharply on Election Day, driven by strong economic data and heightened uncertainty surrounding the outcome of the presidential race as detailed in a report by Bloomberg. A strong report on the US services sector, showing the fastest growth in over two years, added to market volatility ahead of Thursday’s Federal Reserve policy meeting. The upbeat economic numbers dampened expectations for future rate cuts, with strategists now predicting a more prolonged period of higher rates, the Bloomberg report explained further. The two-year Treasury yield reached a multi-month high of 4.24 per cent, while the 10-year yield rose by as much as eight basis points to 4.36 per cent, nearing a three-month high. Further, this uptick in yields came despite a strong auction of $42 billion in 10-year Treasury notes, which drew solid demand at a yield of 4.347 per cent, slightly below market levels. However, the overall bond market remained jittery, with most yields remaining higher on the day as investor concerns about Fed policy and election outcomes mounted. Bond market volatility spiked to levels not seen in over a year, as traders braced for turbulence regardless of the election result. The ICE BofA MOVE Index, which tracks expected Treasury yield fluctuations, closed at its highest level since October 2023. As the election results approach, options on Treasury futures implied the potential for a 22-basis point swing in 10-year yields by week’s end, the largest such move since 2012. Bond markets are primed for significant price adjustments John Higgins, Chief Market Economist at Capital Economics, highlighted the potential for significant price adjustments in the bond market following the election. "While we expect some re-pricing in bonds once the election outcome is clear, it’s uncertain whether the market will see the extreme moves that investors are currently anticipating," he noted. With the presidential race deadlocked between former President Donald Trump and Vice President Kamala Harris, markets are particularly sensitive to potential shifts in policy. A Republican win could mean a return to pro-growth policies, fuelling inflationary pressure and increasing the deficit, which could push Treasury yields even higher. Conversely, a victory for Harris, representing the Democrats, could dampen yields, as investors price in more cautious fiscal policy. Tom di Galoma, head of fixed income at Curvature Securities, anticipates the 10-year yield could rise to 4.75 per cent or even 5 per cent post-election, given the expected push for economic expansion. The strong October services data, showing a surge in hiring, only added to speculation that the Fed may need to maintain higher rates for longer. Swaps traders are pricing in a high likelihood, over 90 per cent of a 25 basis point rate cut at the Fed’s meeting this week. In the currency markets, the US dollar fell slightly, while currency volatility surged. The cost of hedging the euro against the dollar reached its highest level in over four years, as traders adjusted to the heightened risk in global markets. With recent polls showing a narrow race between Trump and Harris, investors are pricing in significant uncertainty in both Treasury and currency markets, preparing for further swings regardless of the election outcome. Overall, the combination of economic strength, an unpredictable election outcome, and Fed rate expectations has resulted in the highest levels of bond volatility in over a year, setting the stage for a potentially volatile week in financial markets.

Treasuries slip on US election day as volatility hits one-year high: Report

A Blue Owl Capital fund issued $1 billion of debt in the US high-grade bond market onTuesday, as the tide of new issues continues to flow.

One of the funds of the private markets-focused alternative asset manager priced the long five-year note, a person familiar with the matter said. The note yields 2.6 percentage points over Treasuries after initial price talk in the 2.8 percentage points area, the person said, asking not to be identified as the details are private, according to a report by Bloomberg.

The sale proceeds would be used to help pay down debt under its revolving credit facility, asset-backed security and other secured financings, the person said.

A spokesperson for Blue Owl did not respond to a request for comment.

The offering follows a deal from another private credit lender earlier this week, in the form of Sixth Street Lending Partners, which sold $600 million of debt on Monday. Private credit funds, commonly referred to as business development companies, have been selling debt at a record-setting pace this year.

Since last week, companies have flocked to the US blue-chip bond market with fresh financings in an apparent race to take advantage of sliding bond yields. About $87 billion of new deals have already been sold so far this month.

The nine other issuers were selling debt on Tuesday, including Oneok Inc., which sold $7 billion of bonds to fund the purchase price for its EnLink Midstream LLC and Medallion Midstream transactions.

The sale of debt was led by Mitsubishi UFJ Financial Group Inc., Royal Bank of Canada, Sumitomo Mitsui Banking Corp., and Wells Fargo &amp; Co., the person familiar added.

A Blue Owl Capital fund issued $1 billion of debt in the US high-grade bond market onTuesday, as the tide of new issues continues to flow. One of the funds of the private markets-focused alternative asset manager priced the long five-year note, a person familiar with the matter said.

A Blue Owl Capital fund issued $1 billion of debt in the US high-grade bond market onTuesday, as the tide of new issues continues to flow. One of the funds of the private markets-focused alternative asset manager priced the long five-year note, a person familiar with the matter said. The note yields 2.6 percentage points over Treasuries after initial price talk in the 2.8 percentage points area, the person said, asking not to be identified as the details are private, according to a report by Bloomberg. The sale proceeds would be used to help pay down debt under its revolving credit facility, asset-backed security and other secured financings, the person said. A spokesperson for Blue Owl did not respond to a request for comment. The offering follows a deal from another private credit lender earlier this week, in the form of Sixth Street Lending Partners, which sold $600 million of debt on Monday. Private credit funds, commonly referred to as business development companies, have been selling debt at a record-setting pace this year. Since last week, companies have flocked to the US blue-chip bond market with fresh financings in an apparent race to take advantage of sliding bond yields. About $87 billion of new deals have already been sold so far this month. The nine other issuers were selling debt on Tuesday, including Oneok Inc., which sold $7 billion of bonds to fund the purchase price for its EnLink Midstream LLC and Medallion Midstream transactions. The sale of debt was led by Mitsubishi UFJ Financial Group Inc., Royal Bank of Canada, Sumitomo Mitsui Banking Corp., and Wells Fargo & Co., the person familiar added.

Blue Owl joins bond market frenzy with $1 billion debt issuance

<a href="https://www.wionews.com/world/in-blow-to-mexican-president-finance-minister-quits-over-economic-extremism-234645">Wall&nbsp;Street&nbsp;main indexes slid 1.5 per cent</a> on Wednesday, as a closely watched US bond market indicator pointed to a renewed risk of recession following poor economic data from Germany and China.

Yields on the two-year Treasury notes rose above the 10-year yield for the first time since 2007, a metric widely viewed as a classic recession signal.

The interest-rate sensitive bank index slipped 2.50 per cent and the broader financial sector fell 1.95 per cent in response.

Slumping exports sent Germany's economy into reverse in the second quarter, while Chinese industrial output growth cooled to a more than 17-year low in July, putting the focus back on a bruising <a href="https://www.wionews.com/opinions/us-china-trade-war-is-making-china-stronger-234526">US-China trade war</a> and its impact on global growth.

The downbeat mood followed a rally in&nbsp;Wall&nbsp;Street's main indexes on Tuesday thanks to the Trump administration's decision to delay tariffs on some Chinese imports.

"It's almost as if global investors either don't buy the tariff delay as a sign of real progress in the US-China trade war or have been too consumed by further evidence of global economic weakness to care," BMO Capital Markets strategist Stephen Gallo said.

At 9:52 a.m. ET, the Dow Jones Industrial Average was down 406.73 points, or 1.55 per cent, at 25,873.18, the S&amp;P 500 was down 44.61 points, or 1.52 per cent, at 2,881.71. The Nasdaq Composite was down 140.86 points, or 1.76per cent, at 7,875.50.

The high-growth technology sector was the hardest hit. Shares of Apple Inc were down 1.74per cent after boosting markets a day earlier with a 4per cent rise.

Chipmakers were also down, with the Philadelphia chip index slumping 2.09per cent.

The biggest decliner on the S&amp;P 500 index was Macy's Inc, down 17.2per cent, after the department store operator cut its full-year profit forecast as it discounted heavily to clear excess spring season inventory.

Rivals Target Corp and Nordstrom Inc slipped 3.4per cent and 9.8per cent, respectively.

Declining issues outnumbered advancers for a 5.40-to-1 ratio on the NYSE and a 5.99-to-1 ratio on the Nasdaq.

The S&amp;P index recorded eight new 52-week highs and 35 new lows, while the Nasdaq recorded eight new highs and 126 new lows

Wall Street main indexes slid 1.5 per cent on Wednesday, as a closely watched US bond market indicator pointed to a renewed risk of recession following poor economic data from Germany and China.

Wall Street main indexes slid 1.5 per cent on Wednesday, as a closely watched US bond market indicator pointed to a renewed risk of recession following poor economic data from Germany and China. Yields on the two-year Treasury notes rose above the 10-year yield for the first time since 2007, a metric widely viewed as a classic recession signal. The interest-rate sensitive bank index slipped 2.50 per cent and the broader financial sector fell 1.95 per cent in response. Slumping exports sent Germany's economy into reverse in the second quarter, while Chinese industrial output growth cooled to a more than 17-year low in July, putting the focus back on a bruising US-China trade war and its impact on global growth. The downbeat mood followed a rally in Wall Street's main indexes on Tuesday thanks to the Trump administration's decision to delay tariffs on some Chinese imports. "It's almost as if global investors either don't buy the tariff delay as a sign of real progress in the US-China trade war or have been too consumed by further evidence of global economic weakness to care," BMO Capital Markets strategist Stephen Gallo said. At 9:52 a.m. ET, the Dow Jones Industrial Average was down 406.73 points, or 1.55 per cent, at 25,873.18, the S&P 500 was down 44.61 points, or 1.52 per cent, at 2,881.71. The Nasdaq Composite was down 140.86 points, or 1.76per cent, at 7,875.50. The high-growth technology sector was the hardest hit. Shares of Apple Inc were down 1.74per cent after boosting markets a day earlier with a 4per cent rise. Chipmakers were also down, with the Philadelphia chip index slumping 2.09per cent. The biggest decliner on the S&P 500 index was Macy's Inc, down 17.2per cent, after the department store operator cut its full-year profit forecast as it discounted heavily to clear excess spring season inventory. Rivals Target Corp and Nordstrom Inc slipped 3.4per cent and 9.8per cent, respectively. Declining issues outnumbered advancers for a 5.40-to-1 ratio on the NYSE and a 5.99-to-1 ratio on the Nasdaq. The S&P index recorded eight new 52-week highs and 35 new lows, while the Nasdaq recorded eight new highs and 126 new lows

Wall Street slides over 600 points as recession fears grow

The US economy may be basking in the warm glow of solid growth, but economists are nervously eyeing a trend in the bond market that could spell stormy weather ahead.&nbsp;Even though President Donald Trump is touting unemployment at its lowest level in 17 years and Wall Street soaring to new heights, economists are worried about one indicator that is often a harbinger of recession: the yield curve.

&quot;Since 1950, each recession has been preceded by a reversal of the yield curve&quot;, said Christopher Low, chief economist of FTN Financial.&nbsp;This closely scrutinized graph maps the difference in yield, or return on investment, of short- and long-term US Treasury debt, usually comparing two-year notes to 10-year bonds.&nbsp;

Normally, the shorter the investment, the lower the yield, and conversely, the longer the investment, the higher the return, to offset the greater risks of losing access to funds for an extended period.&nbsp;But for the past year, the yield curve has been flattening as the return on short-term debt has been getting close to long-term yields, possible signaling eroding confidence in the economy&#39;s performance in the coming years.&nbsp;

The spread between the yield on two- and 10-year Treasury paper fell from 135 in December 2016 to 51 basis points on December 15, the lowest since October 2007 -- just before the start of the global financial crisis.&nbsp;Worse still would be if the yield curve inverts, as short-term returns outpace the longer-dated debt -- meaning the spread is negative -- and if officials ignore the warning. The yield curve inversion &quot;could be heralding a contraction of the economy,&quot; says Gary Duncan, chief economist at Oxford Economics.

Fed policy&nbsp;

As Gregori Volokhine, of Meeschaert Financial Services, explained: &quot;An inversion of the curve indicates that investors do not have confidence in the future&quot;.&nbsp;The main factor behind the flattening of the yield curve is the US central bank&#39;s moves to raise the benchmark interest rate five times since the end of 2015, including three increases this year and three more expected in 2018.

The long-term yields fluctuate more in line with growth and inflation expectations. And while growth prospects have been revised upwards for next year -- in part due to the impact of the massive corporate tax cuts just approved by Congress -- the Federal Reserve&#39;s inflation target will not be reached until 2019, according to its latest forecasts.&nbsp;

The Fed&#39;s preferred inflation measure was only 1.6 percent year-on-year in October.&nbsp;Two voting members of the Fed&#39;s policy committee -- including Minneapolis Fed President Neel Kashkari -- dissented from the December 13 decision to raise rates, preferring to wait for inflation to rise further.

&#39;Worrying&#39;

Kashkari also mentioned his concerns about the yield curve and the signal it is sending to policymakers.&nbsp;&quot;While the yield curve has not yet inverted, the bond market is telling us that the odds of a recession are increasing,&quot; he said in a statement explaining his opposition to raising rates again.

Duncan of Oxford Economics cautioned that &quot;if the Fed tightens its policy too quickly, the markets anticipate a slowdown in the economy in the longer term&quot; as credit becomes more expensive.&nbsp;However, outgoing Fed Chair Janet Yellen downplayed those fears.

&quot;There are good reasons to think that the relationship between the slope of the yield curve and the business cycle may have changed,&quot; Yellen said in her press conference last week.&nbsp;FTN&#39;s Low said Yellen could be making the same mistake as her predecessors Alan Greenspan in 1998 and Ben Bernanke in 2006, who each saw recessions after the yield curve inverted.&nbsp;

&quot;Janet Yellen is making the same speech,&quot; Low said. &quot;This is worrying&quot;. Like most analysts, Low does not anticipate an inversion before 2019, or a recession until &quot;early 2020&quot;.&nbsp;Historically the economy has seen four to six quarters between a curve inversion and the start a recession.

Of course, not every flat curve brings on an economic downturn, and some economists agree with Yellen that it may be too early to panic.&nbsp;Noted economist Mohamed El-Erian, the chief economic adviser at Allianz SE, the parent company of PIMCO, notes several reasons the yield curve could steepen, including many indicators signaling the economy still has room to expand and inflation to pick up.

If it doesn&#39;t, the Fed could reverse course quickly, he wrote in a blog post.&nbsp;In addition, &quot;the synchronized pick-up in growth in the rest of the world is supportive of the US expansion&quot;.

Economists are worried about one indicator that is often a harbinger of recession: the yield curve

The US economy may be basking in the warm glow of solid growth, but economists are nervously eyeing a trend in the bond market that could spell stormy weather ahead. Even though President Donald Trump is touting unemployment at its lowest level in 17 years and Wall Street soaring to new heights, economists are worried about one indicator that is often a harbinger of recession: the yield curve. "Since 1950, each recession has been preceded by a reversal of the yield curve", said Christopher Low, chief economist of FTN Financial. This closely scrutinized graph maps the difference in yield, or return on investment, of short- and long-term US Treasury debt, usually comparing two-year notes to 10-year bonds. Normally, the shorter the investment, the lower the yield, and conversely, the longer the investment, the higher the return, to offset the greater risks of losing access to funds for an extended period. But for the past year, the yield curve has been flattening as the return on short-term debt has been getting close to long-term yields, possible signaling eroding confidence in the economy's performance in the coming years. The spread between the yield on two- and 10-year Treasury paper fell from 135 in December 2016 to 51 basis points on December 15, the lowest since October 2007 -- just before the start of the global financial crisis. Worse still would be if the yield curve inverts, as short-term returns outpace the longer-dated debt -- meaning the spread is negative -- and if officials ignore the warning. The yield curve inversion "could be heralding a contraction of the economy," says Gary Duncan, chief economist at Oxford Economics. Fed policy As Gregori Volokhine, of Meeschaert Financial Services, explained: "An inversion of the curve indicates that investors do not have confidence in the future". The main factor behind the flattening of the yield curve is the US central bank's moves to raise the benchmark interest rate five times since the end of 2015, including three increases this year and three more expected in 2018. The long-term yields fluctuate more in line with growth and inflation expectations. And while growth prospects have been revised upwards for next year -- in part due to the impact of the massive corporate tax cuts just approved by Congress -- the Federal Reserve's inflation target will not be reached until 2019, according to its latest forecasts. The Fed's preferred inflation measure was only 1.6 percent year-on-year in October. Two voting members of the Fed's policy committee -- including Minneapolis Fed President Neel Kashkari -- dissented from the December 13 decision to raise rates, preferring to wait for inflation to rise further. 'Worrying' Kashkari also mentioned his concerns about the yield curve and the signal it is sending to policymakers. "While the yield curve has not yet inverted, the bond market is telling us that the odds of a recession are increasing," he said in a statement explaining his opposition to raising rates again. Duncan of Oxford Economics cautioned that "if the Fed tightens its policy too quickly, the markets anticipate a slowdown in the economy in the longer term" as credit becomes more expensive. However, outgoing Fed Chair Janet Yellen downplayed those fears. "There are good reasons to think that the relationship between the slope of the yield curve and the business cycle may have changed," Yellen said in her press conference last week. FTN's Low said Yellen could be making the same mistake as her predecessors Alan Greenspan in 1998 and Ben Bernanke in 2006, who each saw recessions after the yield curve inverted. "Janet Yellen is making the same speech," Low said. "This is worrying". Like most analysts, Low does not anticipate an inversion before 2019, or a recession until "early 2020". Historically the economy has seen four to six quarters between a curve inversion and the start a recession. Of course, not every flat curve brings on an economic downturn, and some economists agree with Yellen that it may be too early to panic. Noted economist Mohamed El-Erian, the chief economic adviser at Allianz SE, the parent company of PIMCO, notes several reasons the yield curve could steepen, including many indicators signaling the economy still has room to expand and inflation to pick up. If it doesn't, the Fed could reverse course quickly, he wrote in a blog post. In addition, "the synchronized pick-up in growth in the rest of the world is supportive of the US expansion".

Could the 'curve' be warning of a US recession?

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Treasuries slip on US election day as volatility hits one-year high: Report

Blue Owl joins bond market frenzy with $1 billion debt issuance

Wall Street slides over 600 points as recession fears grow

Could the 'curve' be warning of a US recession?