The probability of the “blue wave” has fallen, and the bond market has seen a lot of short
Original title: The probability of “blue wave” has fallen, and the bond market has found a lot of shorts
Previously, the long-term US Treasury market It is expected that the Democratic Party will win the US general election next month, but now options traders are beginning to question this prediction. Last week there was a bet that there would be no volatility jump or a sharp breakthrough in yield before the end of the year.
Specifically, they are betting that the 10-year Treasury bond yield is capped at about 1%, which is less than 20 basis points higher than the current level. Some deals came after the last presidential debate on Friday.
The change in market sentiment may be because Trump’s gap in key swing states is approaching Biden, and the probability of a complete victory for the Democratic Party has gone from two. The 62% a week ago dropped to 51% now.
<img id="0" style="max-width: 640px;" src="//n.sinaimg.cn/spider20201026/609/w831h578/20201026/2cf2-kcaeqzx1763445.png" alt="bye Another reason for the decline in Deng’s winning rate is that the market has questioned whether the Democratic Party can gain control of the Senate. "Another reason for the decline in Biden’s winning rate is that the market has questioned whether the Democratic Party can gain control of the Senate.
This is contrary to the results of previous polls. Polls show that the Democrats may win the White House and the Senate at the same time, which will facilitate the passage of a larger fiscal stimulus plan through Congress to support the US economy from the epidemic In the recovery.
But if the options traders are right, the Democrats cannot win and the US Treasury bonds may face a sharp reversal.
Now that the market is pricing in the possibility of this outcome, investors’ put bets on bonds have never been greater.
U.S. 10-year Treasury bond yields rose to 0.851% last Monday, the highest level since June 9. The yield on the 30-year Treasury bond rose even more, rising by about 11 basis points to 1.64%, pushing the yield difference between it and the 5-year Treasury bond to the largest level since 2016.
In fact, according to Bank of America, Biden’s election as President and the Republican Party’s continued control of the Senate is the only situation worse than Trump’s election as President and the Democratic Party’s control of Congress. This will Lead to deflation.
In this case, Bank of America recommends that investors should be prepared for lower returns and higher volatility. Reserve cash, buy U.S. Treasury bonds, municipal bonds, and high-quality corporate bonds.
In addition, financial blogs warn of zero hedging. If deflation really occurs, it is easy for bonds to squeeze short positions. And Republican control of the Senate will be a catalyst.
Mizuho International’s multi-asset strategy manager in London Peter Chatwell said:
” The market generally believes , There will be a blue wave in the U.S. election, that is, the Democratic Party won a big victory. As a result, a large number of stimulus measures will be introduced and inflation will be triggered.”
But if The final election results are different, or even if the polls start to change before the vote, some investors may repurchase U.S. Treasuries.
However, as Golden Ten reported last week, some market participants predict that no matter who wins in November, the Fed will take action to curb the surge in U.S. bond yields.
In addition to the general election, the biggest highlight of this week is Friday’s third quarter annualized quarterly initial GDP of the United States-the last time before Trump’s election According to the “report card”, the market predicts that with the reopening of enterprises, the economy will rebound as high as 32% last quarter, with the previous value being -31.4%.
higher-than-expected data may also push up yields, increase the risk of mortgage-related hedging, and thereby exacerbate selling.
Given that the general election is still highly uncertain, the result of the general election may still be controversial, and the market may have to wait patiently to know which side is betting right.
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