Yields climb as market awaits US election results

CHICAGO/LONDON: US Treasury yields marched higher on Tuesday as the market braced for potential volatility on Election Day due to uncertainty over the results.

Americans headed to the polls to decide whether incumbent Republican President Donald Trump or his Democratic challenger Joe Biden will be elected president.

The benchmark 10-year yield, which earlier rose to 0.887%, its highest level since June, was last up 3.6 basis points at 0.884%.

Yields on two- and five-year notes also reached multi-month highs earlier in the session.

Bill Merz, head of fixed income research at US Bank Wealth Management in Minneapolis, pointed to the potential for "a significant amount of volatility" in the market as some traders have positioned for Democrats to win the White House and control of Congress in the election.

"In that scenario of a blue sweep, there is an expectation of a larger fiscal package and that would indicate additional supply as well as boost the prospects for reflationary pressures to reemerge," he said.

Still, Merz noted the 10-year yield remained rangebound and that the US Federal Reserve, which meets on Wednesday and Thursday, could discuss shifting its Treasury purchases to the long end of curve to prevent those yields from climbing too high.

He added that a medical solution to end the coronavirus pandemic was more important than the US election results due to its impact on the nation's economic recovery.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was last up less than a basis point at 0.1663%.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, which is viewed as an indicator of economic expectations, was last at 71.63 basis points, 2.6 basis points higher from Monday's close.