Resilient US economic data and the close race between Republican candidate Donald Trump and Democratic nominee Kamala Harris for the presidency have left investors preparing for sharp swings in markets next week.
Yields on 10-year Treasuries have risen 0.6 percentage points since October 1. An ICE BofA gauge of implied Treasury market volatility lurched higher last month while the dollar posted its biggest monthly gain since 2022.
The rapidly changing sentiment has been driven in part by a spate of strong economic data, which has called into question how rapidly and deeply the Federal Reserve needs to cut interest rates.
However, many market participants also believe that higher yields and a rising dollar stem from increasing expectations of a Trump victory in Tuesday’s election — a scenario widely perceived to be inflationary, not least because of his economic policy of trade tariffs.
“The election results are too close to call, and the magnitude of the move [in Treasuries] will be determined by where yields sit Tuesday morning,” said Leslie Falconio, a strategist at UBS Global Wealth Management.