growing anxiety over the u.s. presidential election stoked demand for haven bonds, pushing up prices of u.s. government bonds after an earlier bout of declines. investors initially sold treasury debt, sending the yield on the benchmark 10-year treasury note to near a five-month high, after a manufacturing indicator out of china reached the highest in more than two years. the report reduces worries over a sharp slowdown in the world<u+2019>s second-largest economy and adds to a set of encouraging data over the past month that point to some improvement in the global growth outlook. but as concerns over next week<u+2019>s election result drove investors to shed risk appetites, the bond market regained ground. buying picked up speed during midafternoon session as u.s. stocks deepened their price losses and vix, the fear gauge on wall street, reached the highest since september 12. the yield on the benchmark 10-year treasury note settled at 1.822%, down from a session high of 1.877%. the yield was 1.834% monday. yields fall as bond prices rise. investors are hedging their bets on the prospect of a victory by hillary clinton, the nominee from the democratic party, after news reports last friday that federal investigators have launched a new probe into her private emails . wagers that would benefit if donald trump , the candidate from the republican party, wins are mounting again after a recent pullback. among the most pronounced moves was the mexican peso , which is under renewed selling pressure against the dollar. tuesday, the u.s. dollar gained 1.8% versus the peso. <u+201c>the markets are reacting to the political uncertainty risk now,<u+2019><u+2019> said jason evans, co-founder of hedge fund ninealpha capital lp. <u+201c>the markets were overwhelmingly priced for a clinton win. but some of the complacency is pared back.<u+201d> mr. evans says he refrains from placing big bets on the election result. some traders pointed to latest poll results tuesday that added to risk aversion in markets. the latest abc news/washington post tracking poll showed that while vote preferences have held essentially steady, mrs. clinton is a slim point behind mr. trump, a first since may. the election uncertainty may continue to whipsaw markets in the short term, say traders and analysts. the factor bolsters investors<u+2019> expectation that the federal reserve is going to hold interest rates steady when it completes a two-day monetary policy meeting on wednesday. economists and analysts expect the fed to reiterate its plan to raise interest rates this year. some analysts caution that a win by mr. trump may alter the fed<u+2019>s tightening plan this year if it resulted in fresh market stress. whether the fed raises rates in december also hinges on how the economy performs. friday<u+2019>s nonfarm jobs report will be one of the key datapoints. bond yields have been rising after a big drop during the summer following the u.k.<u+2019>s referendum to leave the european union. the 10-year note<u+2019>s yield rose by 0.23 percentage point in october, the biggest monthly increase since june 2015. investors<u+2019> appetites for long-term government debt in the developed world have been diminishing due to improvement in global economic data, rising inflation expectation, concerns about major central banks<u+2019> bond buying programs in japan and europe reaching a limit and a potential shift into large fiscal stimulus in 2017 that would require rising government debt issuance for funding. some analysts say the 10-year treasury yield could rise to 2% or above that level if selling picks up momentum. the yield last traded at 2% back in march. some traders say a move closer to 2% would attract buying interest as a swift rise in yields would push up mortgage rates and tighten financial conditions, not a good combination for the u.s. economy that is still stuck in a moderate pace. despite the rise, treasury yields remain historically very low. the yield traded at 2.273% at the end of 2015. it traded at 3% in early 2014. write to min zeng at min.zeng@wsj.com
u.s. government bonds rebound on election uncertainty - wsj
min zeng