The Treasury Yield Moves Higher as Traders Prepare for the U.S. Election

Treasury yields rose early Tuesday amid heightened market tension, as investors closely monitored the upcoming U.S. election and the Federal Reserve’s policy decision expected later in the week.

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Current Yield Movements

The yield on the 2-year Treasury climbed by 0.9 basis points to reach 4.179%, while the yield on the 10-year Treasury rose by 1.9 basis points to 4.308%. Meanwhile, the 30-year Treasury yield increased by 3 basis points, reaching 4.497%.

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Key Market Influences

Investors and traders are cautiously awaiting updates on the U.S. 2024 election results, which has led to only modest changes in Treasury yields. This follows Monday’s dip in yields after polling data hinted that investors might need to reconsider assumptions about Donald Trump’s odds in the race.

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Jim Reid, a strategist at Deutsche Bank, noted, “There’s been a noticeable unwind of the ‘Trump trade’ over the past 24 hours following a few weekend polls that seemed more favorable for Kamala Harris.” This shift suggests that, with a divided government scenario, the prospect of major fiscal stimulus could be reduced—a scenario that typically bodes well for Treasuries. Reid added that with less likelihood of fiscal stimulus, there may be an increased probability of rate cuts by the Federal Reserve.

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The Federal Reserve is expected to announce its decision on interest rates this Thursday, with market indicators suggesting a 98% chance of a 25-basis-point rate cut, bringing the target range down from 4.75%-5.00%. Based on futures, the Fed’s funds rate target is expected to lower to approximately 4.5% by year-end.

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Market Anxiety Surges

The heightened uncertainty surrounding the election outcome has pushed the ICE BofAML MOVE index, a measure of expected Treasury volatility, up to 136.3—its highest reading since October 2023. This elevated level indicates an increase in market anxiety, as investors brace for potential volatility.

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Upcoming Market Catalysts

Aside from the election and the Fed decision, several economic data releases and events are scheduled for Tuesday, which could further influence market movements. These include:

• 8:30 a.m. ET: The U.S. trade deficit report for September
• 9:45 a.m. ET: The final U.S. services PMI reading for October, provided by S&P
• 10:00 a.m. ET: The Institute for Supply Management (ISM) services index for October
• 1:00 p.m. ET: Results of the $42 billion Treasury auction of 10-year notes

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Investors will be watching these data points for signs of economic strength or weakness, which could sway expectations for future Fed policy adjustments and, by extension, influence Treasury yields.

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