The yield on the benchmark 10-year Treasury burst through 0.9 per cent for the first time since June and US equity futures rose in the first minutes of trading in Asia on Wednesday, as investors girded for a volatile night as US election results roll in.
Some traders warned of “air-pockets” in the market, predicting sharp moves because many fund managers are sitting on the sidelines and liquidity may be low.
The first moves pointed to an acceleration of a trade seen during regular trading hours on Tuesday, with selling gripping the Treasury market. The yield on the 10-year note climbed 0.03 percentage points to 0.927 per cent, its highest level since June. Yields rise as a bond’s price falls.
The dollar continued to slide in tandem — 0.4 per cent lower against the euro and down 0.5 per cent against the pound.
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US stocks also looked poised for a third straight daily gain on Wednesday if moves in futures markets hold overnight. S&P 500 futures climbed as much as 1 per cent in the first hour of trading in Asia and remained not far below that high in subsequent trading. Nasdaq 100 futures were up 0.3 per cent.
Money managers had broadly positioned themselves for a strong showing by Joe Biden at the start of the week, continuing shifts they had made when the Democratic presidential nominee had widened his lead in the polls in September. Investors have been selling 10-year and 30-year Treasuries as part of a wager that trillions of dollars worth of stimulus could flood into the economy if Mr Biden wins the presidency and his party takes control of the Senate.
US equity markets have moved dramatically in recent days. A rebound by the S&P 500 on Monday and Tuesday helped investors recoup some of the losses they tallied over the previous five trading days, which proved to be the worst week for the nearly $40tn US equity market since the sell-off in March.
Investors and hedge funds have zeroed in on several battlegrounds where results could come relatively early in the night and provide a signal as to how Mr Biden will fare against US president Donald Trump.
Singapore-based hedge fund group Dymon Asia Capital, for instance, said it was focused on Harris and Tarrant counties in Texas, a traditionally Republican state, according to a note seen by the Financial Times. A competitive showing from the Democratic candidate there would be seen as a sign that Mr Biden could win the election.
Dymon, set up by Danny Yong, said it expected market decisions to be made between 8pm to 10pm on the US east coast, shortly after a “data dump” of results from states such as Florida.
Goldman Sachs has advised its trading clients to focus on races in Florida, North Carolina and Ohio where vote counts are expected to happen relatively quickly. North Carolina was also the marginal seat that Democrats needed to take a majority in the Senate, Goldman said.
Additional reporting by Laurence Fletcher in London