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Eric Platt and Colby Smith in New York and Katie Martin in London
Fading expectations of a decisive election victory for Joe Biden have boosted bonds and raised the dollar as a set of operations based on a “blue wave” Democratic sweep from the White House and Congress stumbled.
Investors had raised the stakes in recent days that decisive victories by Democrats in line with opinion polls leading up to the vote would spark another round of stimulus for the US economy.
Biden may still win the presidency, but Donald Trump’s victories in Florida and Ohio have undermined investors’ expectations of a major victory for Democrats. Instead, strong performance by Republicans in various battle states, and seemingly tight Senate control, have led money managers to brace for the prospect that the outcome will remain unclear for days and that the United States could stick around. with a divided government, which complicates the situation. investment prospects.
“The ‘blue wave’ trading has been going on since the summer and has accumulated more recently, and I hope it will unravel now. But beyond that, trading the result in this environment doesn’t make sense, ”said Fabiana Fedeli, global director of fundamental equities at Robeco.
“In the short term, I think we are left out,” he added, arguing that the economic stimulus and the path of the pandemic were much more important drivers for the markets than the outcome of the elections alone.
The 10-year Treasury yield briefly eclipsed 0.9 percent Tuesday night, hitting the highest level since June, in anticipation that a big Democratic win could skyrocket government spending and potentially inflation. In turn, this was expected to put more downward pressure on longer-term bond prices and yields to rise.
But yields fell to 0.8 percent Wednesday morning, reflecting how some fund managers had been caught. “Markets need to take a serious look at their systems,” said Didier Saint-Georges, head of portfolio advisers at French investment house Carmignac. “We are now back to where we were before the ‘blue wave’ trade. We go back to the basics. “
The dollar also strengthened along with gains on Treasuries, rising 0.3% against the euro and 0.4% against the Japanese yen.
