Wall Street views the Treasury market as a winner from the Democratic landslide in the US midterm elections, prompting traders to rethink the year's sharp selloff. The party's sweep of Congress was seized upon by bond bulls after tech stocks tumbled on speculation the political shift will slow an artificial-intelligence investment boom fueling growth, inflation, and rising rates. A politically divided government will prevent President Donald Trump from passing major tax or spending bills, easing concerns about a $2 trillion annual budget deficit.
Oil prices tumbled on speculation the Republican defeat will hasten the end of the Iran war, whose energy shock triggered the bond market selloff eight months ago. This extends a nearly monthlong Treasury rally that pushed 10-year yields down to nearly 4.8%, more than a half-percentage-point below the early October peak. The market held weekly gains even after Friday's Labor Department report showed accelerated job growth.
Scott Di Maggio of Alliance Bernstein noted AI's contribution to nominal GDP helps the bond market if economic stumbles occur. John Briggs of Natixis warned stocks may have fallen too fast unless they sell off violently. The bond market faces tests this week with October consumer price index data and quarterly Treasury refunding auctions.
Neil Sutherland of Schroder Investment Management sees the current high yields as attractive, predicting market pressures will ease in six to 12 months, supportive for bonds. Economic data, Fed calendar, and auction calendar are key items to watch.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing