‘Trump Trade’ Doubts Drag on Dollar, Boosting US Treasuries
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(Bloomberg) -- Treasury yields declined and the dollar weakened as investors pared bets on Republican Donald Trump prevailing in Tuesday’s US presidential election.
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The yield on 10-year Treasuries dropped as much as 12 basis points to 4.26% in US trading after a new poll suggested traders were underestimating the prospect of a win for Democrat Kamala Harris. The Bloomberg Dollar Spot Index slid as much as 0.7%, while the Mexican peso — which has suffered from Trump’s talk of tariffs — was one of the biggest gainers among major currencies. Bitcoin, which has climbed on Trump’s support of cryptocurrencies, slipped.
The moves signal a re-evaluation of so-called Trump trades after polling data cast doubt on that result. A Des Moines Register/Mediacom Iowa poll showed Harris with a 3 percentage-point lead in the state over Trump, and could be a bellwether for how Harris performs in nearby Wisconsin — one of seven swing states. Still, an NBC News poll released Sunday showed the race remains deadlocked.
Treasuries and the dollar trimmed some of their gains during the New York session as the market awaited Election Day. The Bloomberg gauge of the greenback was on track for its biggest drop since September.
“We are operating with a premise — the Senate leans Republican, House is a coin toss,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. “So a Harris win with that premise means more price action like today,” with yields falling and the curve flattening, he said. In the event of a Trump win and the same backdrop for Congress, the curve steepens as yields rise, he said.
In recent weeks, investors have been betting on a Trump win, positioning for his low-tax and high-tariff policies to boost both growth and inflation. Those bets helped push the dollar gauge to a four-month high last week and sent yields on 30-year Treasuries to their highest since July, creating a steeper yield curve.
Monday’s activity in US interest rates, by contrast, included traders exiting Treasury option trades that targeted higher longer-dated yields and a steeper curve. There was also demand for new positioning targeting a bond-market rally dropping 10-year yields back below 4%.