Daily Market Color

Rates Rise Ahead of Presidential Election Results

Treasury yields rise sharply ahead of election night – yield curve now at its steepest level since 2018
With the uncertainty surrounding tonight’s US presidential election results, markets experienced high levels of volatility during today’s trading session.  Treasury yields and swap rates rose dramatically across the curve – the benchmark 10-year yield rising 6 bps to close right under 0.90%, a level not seen since June. The spread between 2-year and 10-year yields also climbed, rising to 73 basis points (the steepest level since 2018). Meanwhile, equities bounced higher — the S&P 500 closed up 1.8% while the DJIA posted its biggest daily rise since July at 2.1%
The November FOMC meeting begins tomorrow, the bank’s first rate-setting meeting after the election
Markets are not anticipating any rate change at tomorrow’s FOMC meeting- the Fed indicating they plan to keep rates at their current near-zero levels for the foreseeable future. The last FOMC announcement failed to add more color regarding the central bank’s new inflation strategy, which aims for a level of inflation above the historical 2% target. Economists are expecting the November FOMC announcement to shed more light on exactly how the Fed plans to achieve their inflation goal and detail any further expansion of the central bank’s balance sheet.  The Fed has also been a major advocate for more fiscal stimulus, so economists are expecting Fed Chair Jerome Powell to once again address the need for added aid.
Expected post-election market moves
As the election looms closer, economists are attempting to forecast major market moves. A “blue wave” is expected to expedite the passing of a large stimulus package- likely pushing yields higher.  A divided government is expected to pull rates lower, with economists forecasting continued roadblocks for major policy decisions around virus relief. A contested result meanwhile would likely send Treasury yields and swap rates lower.

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