FILE PHOTO: A sign encouraging voter turnout is seen at a campaign yard sign distribution site in Madison, Wisconsin, U.S., October 17, 2020. REUTERS/Bing Guan/File Photo

LONDON/NEW YORK (Reuters) – A higher risk of a split U.S. Congress and a contested election is being factored into some market analysts’ models after some odds on the Presidential election have shown a narrowing.

European betting exchange Paddypower said on Wednesday that while Biden was clearly “odds-on” to win, over the last few days “punters have started backing Trump again.”

According to Real Clear Politics’ presidential election results betting odds from Sept. 30 through Oct. 12, the probability of a Biden win increased, but have more recently slipped.

Paddypower gives Biden a more than 60% chance of winning, versus Trump at around 40%, and says that the odds have narrowed.

Analysts at JPM said in a note on Tuesday that risk markets in the first two weeks of October were supported by a widening of U.S. presidential odds, implying a lower probability of a close or contested election, but over the past week, those odds started narrowing again.

That could pressure risk markets with negative implications for the so-called “value trade,” which is seeing a steepening yield curve and prospective shift towards traditional cyclical stocks like banks, said the JPM analysts.

Brown Brothers Harriman said in a note on Wednesday that with control of the Senate “very much at stake, there is still a large chance we get the most fiscally conservative outcome for this election,” with the chance of a Biden victory with a Republican Senate, and no large stimulus package coming after the election.

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RBC equity derivatives strategist Amy Wu Silverman wrote last week that the options market may have “come too far in the other direction” in pricing in a Blue Wave and was underpricing the possibility of a Trump victory.

Predictit odds here on U.S. Senate control show that while the chances of a Democratic Senate exceed that for Republicans, the odds of GOP control have ticked up slightly recently.

Reporting by Thyagaraju Adinarayan and Megan Davies; Editing by Nick Zieminski

Via Reuters Finance