Treasury yields were higher early Tuesday, with a gauge of market anxiety at a fresh 2024 peak, as investors eyed the U.S. election and Federal Reserve decision this week.
What's happening
-- The yield on the 2-year Treasury BX:TMUBMUSD02Y climbed by 0.9 basis points to 4.179%.
-- The yield on the 10-year Treasury BX:TMUBMUSD10Y rose 1.9 basis points to 4.308%.
-- The yield on the 30-year Treasury BX:TMUBMUSD30Y added 3 basis points to 4.497%.
What's driving markets
Traders are on tenterhooks as they await news on the outcome of the 2024 U.S. election.
Yields are moving relatively little, in contrast to sharp falls on Monday after a poll suggested investors needed to revisit their bets that Donald Trump was the more likely victor.
"[T]here's been a clear unwinding of the Trump trade over the last 24 hours, which follows a few polls over the weekend that were more favorable to Kamala Harris," said Jim Reid, strategist at Deutsche Bank.
"The logic for the Treasury rally is that under a divided government scenario, we're less likely to see fiscal stimulus, so that's better news for Treasuries, and with less fiscal stimulus we're more likely to get rate cuts from the Fed," Reid added.
The Federal Reserve will deliver its policy decision on Thursday, with markets currently pricing in a 98% chance it will cut interest rates by 25 basis points from the range of 4.75% to 5.00%, according to the CME FedWatch tool.
The central bank is expected to take its Fed funds rate target back down to around 4.5% by the end of the year, according to 30-day Fed Funds futures.
Anxiety head of the election result has pushed the ICE BofAML MOVE index, a gauge of expected Treasury volatility, to 136.3, its highest level since October 2023.
Some of the other potential market catalysts due Tuesday for traders to consider include:
-- 1:00 p.m. Treasury announces result of $42 billion auction of 10-year notes.
-Jamie Chisholm
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