US Treasury Yields: Presidential Election Begins

U.S. Treasury yields were mixed on Tuesday as investors prepared for the presidential election results.

The 10-year Treasury Department The yield fell 2 basis points to 4.289% after giving up gains in afternoon trading. The yield on the 2 years treasury also rose about 2 basis points to 4.197%.

One basis point is equal to 0.01%. Yields and prices have an inverse relationship.

The yield moves come as US citizens vote in the highly anticipated presidential election on Tuesday. The race between Vice President Kamala Harris and former President Donald Trump is expected to be close.

Investors will also be paying close attention to which party takes control of Congress, as power-sharing in Washington could make it harder for either presidential candidate to enact their policies. A clear victory for the Republicans or Democrats, on the other hand, could lead to major changes in spending or tax policy.

The benchmark 10-year Treasury yield has trended higher in recent weeks, after being below 3.8% in early October.

Beyond the election, John Luke Tyner, head of fixed income at Aptus Capital Advisors, told CNBC that inflation is still top of mind for bond investors and that those concerns could explain some of the recent volatility in Treasury yields.

“I think you've definitely seen some political changes with different candidates leading in the polls. But I think at the end of the day a lot of the data continues to point to a soft landing,” Tyner said.

“There is an asymmetry in that (the Federal Reserve) cuts much more than less when the data goes down, and I think the market sees that as a potential risk by being a little aggressive with the cuts, but maybe not somehow.” “We are putting out the inflationary fire that was sparked after Covid,” he added.

Yields rose briefly during the day after the Institute for Supply Management's October reading for services came in stronger than expected.

The purchasing managers' index for services reached 56.0, the highest value since July 2022. Economists surveyed by Dow Jones expected a value of 53.7.

Later this week, the Fed will hold its monetary policy meeting on Thursday. According to CME Group's FedWatch tool, traders expect a 99 percent chance of a quarter-point rate cut, following a jumbo half-percentage point rate cut in September.