Treasury Yields Should Rise if Democrats Win Big on Election Day
today at 5:53 pm
All the polls and prediction models are essentially saying the same thing- the Democrats could be in for a big win on Election Day. It’s looking more and more likely that Joe Biden defeats Donald Trump to take the Presidency, the Democrats maintain control of the House of Representatives, which they took in the 2018 midterms, and they gain enough Senate seats to take control of the upper chamber.
That means we could have one party control of the legislative and executive branches, and that can lead to an increase in treasury yields. And with Treasury yields set to uptick, it could mean some market momentum changes. We could see a lot of money moving in different directions, so it’s best to maybe place your bets now.
After all what is stock trading, but just a more high brow, elitist, sophisticated version of gambling. Whether you’re wagering at Casino Bee or calling your broker at Charles Schwab, you are taking a risk, albeit a calculated one. Beta, used in the capital asset pricing model (CAPM), is the relationship between systematic risk and expected return. Risk factors measure the volatility of a security or portfolio compared to the market as a whole. The closest thing to no risk are treasuries, as you are literally investing in the financial system of the United States of America’s the world’s foremost economic superpower.
Of course, a venture with as little risk as investing in the U.S. government, means very small return as well. The latest yield on the benchmark or intermediate 10-year U.S. Treasury note is 0.775%, up from 0.644% before the (what some actually believed was a) presidential debate on Sept 29. The only thing we can say about that debate is how glad we are that no more are scheduled at this time.
The yield on the long or 30-year bond is now up to 1.573% from 1.404%. Finishing out the list of key treasury yields numbers, the short, or 3-month is at 0.09%, which is ultra low to say the least. Having zero rates, you know, almost literally nothing, is a sign of being in an economic depression, which of course the stock market indices will tell you we are nowhere near the vicinity of. Remember though, the stock market and the economy are two completely different things.
If the Election results, whenever we learn them, sees the Democrats winning/controlling the Presidency and both houses of Congress, it means an easier opportunity to expand the federal budget deficit through tax cuts or spending programs.
Larger federal deficits can mean treasury yields could go higher for two reasons. First, the supply of outstanding bonds increases, as government needs to raise more money and they ramp up their borrowing.
Secondly, we could see a boost in economic growth and thus with it inflation, and that bonds a much less attractive place to park your money.
Because after all, bond prices and interest rates have an inverse relationship. So there are certainly reasons to be bullish on prospects for the economy if the Dems win big.
Paul M. Banks runs The Sports Bank, partnered with News Now. Banks, the author of “No, I Can’t Get You Free Tickets: Lessons Learned From a Life in the Sports Media Industry,” has regularly appeared in WGN, Sports Illustrated, Chicago Tribune and SB Nation. Follow him on Twitter and Instagram.
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