10-year US yield declines after elections show no clear winner.

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A close race sent the yield on 10-year government bonds from a five-month high of 0.945% to 0.758%.
Trump falsely said he had won the race and warned that he would take the election results to the Supreme Court.
A 10-year yield now threatens to fall below the rising trend line near 0.76%.

The yield of the 10-year U.S. Treasury fell sharply on Wednesday after the first results of the U.S. presidential election failed to produce a clear winner that put the markets in a risk-free trading mood.

Fundamental Analysis: Largest One-Day Decline since March

The prospect of contested elections was considered equally unlikely yesterday, as polls showed Democratic candidate Joe Biden leading the race. A close race, however, saw 10-year government bond yields rise from a five-month high of 0.945% to 0.758%.

Today’s decline of more than 15 basis points is on its way to becoming the largest since the market crisis fueled by the pandemic in March.

“The long end of the Treasury market was a short position last night. And the price movement was very significant when the absence of a blue wave became apparent,” Gregory Faranello, head of U.S. interest rate trading at AmeriVet Securities, said in a note on Wednesday.

Investors began shifting their holdings into low-risk investments after Trump falsely said he had won the race and warned that he would take the election results to the Supreme Court.

“We’re going to the U.S. Supreme Court, we want all voting to be stopped. We don’t want them to find any ballots at 4 a.m. and put them on the list,” he said.

One thing is certain – the list of likely outcomes has narrowed considerably, said John Hardy, Saxo Bank’s Head of Foreign Exchange Strategy.

“The outcome of this election will reverberate for years to come, but the headline is that from 2016, we will have seen a second repeat of the “trump quake”, at least in terms of its strength in the polls compared to what the polling industry has predicted,” he said.

“The main uncertainty is the final part of the census in states like Wisconsin, Michigan and Pennsylvania, the three key states that made the difference for Trump in 2016. Late postal votes there are tilting the Democrats and are still in tension, as is the tense situation in Nevada.

Technical Analysis: Major downward correction

Uncertainty is likely to increase demand for safe haven assets with a 10-year yield, which now threatens to break below the rising trend line near 0.76%. Yields are moving inversely to prices.

10-year government bond yield (TradingView)

The 10-year yield has now also dropped below the 100 DMA mark as the next target is 200 DMA amid increased uncertainty.

Summary

In view of the great uncertainty about the outcome of the US presidential elections in 2020, investors are shifting their assets to safer havens.

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