Investors are experiencing increased volatility in the bond market as the US presidential election approaches on November 5th, while gold prices have reached record highs. This market trend reflects a combination of strong U.S. economic data, political and trade expectations, and focus on the fiscal outlook, which has driven the 10-year Treasury yield to a three-month high.
US yields outperformed global yields despite broad declines in European government and sovereign bonds on Monday, especially after strong US jobs data dampened traders’ confidence in potential asset discounts. . Selling pressure has eased relative to Treasuries and German Bunds since the surprising jump in U.S. payrolls was reported earlier this month. As a result, the spread between U.S. and German government bonds widened to its widest level since July, and the gap between U.S. and British bonds turned positive last week.
Goldman Sachs expects the combination of a strong U.S. economy and an accommodative European Central Bank to further widen these spreads. The financial institution set a target for the spread between German federal bonds and U.S. Treasuries at 205 basis points, noting the election and economic fundamentals as key focuses.
Markets are looking forward to the U.S. jobs report to be released on Nov. 1, with few other economic announcements scheduled before the election. Investors are starting to take a defensive stance in anticipation of the election results. Republican candidate Donald Trump’s policies, including changes to taxes, tariffs, and immigration, are thought to have the potential to cause inflation and therefore be negative for bonds. Similarly, Democratic candidate Kamala Harris is expected to push for significant government spending.
Corporate financial reports are also in the spotlight as investors seek information about the state of the economy. In Europe, recruitment firm Randstad and aerospace and defense firm Saab will announce their results on Tuesday. In the United States, Texas Instruments (NASDAQ:), 3M (NYSE:), General Motors (NYSE:), Freeport-McMoRan (NYSE:), Lockheed Martin (NYSE:), General Electric (NYSE:), Verizon (NYSE:NYSE:) and others are scheduled to release their earnings results.
Meanwhile, trading in Asia was relatively calm, with most markets trending lower. On the geopolitical front, US Secretary of State Antony Blinken will visit Israel on Tuesday as part of a Middle East tour to foster discussions on the Gaza ceasefire. But oil prices soared on Monday after the death of Hamas leader Yahya Sinwar failed to make the expected progress in peace talks.
Investors are also keeping an eye on the International Monetary Fund’s (IMF) annual meeting and additional earnings reports from companies such as Philip Morris (NYSE:) and Kimberly-Clark (NYSE:NYSE:).
Reuters contributed to this article.
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