Election Influence: Bond Yields and Treasuries Reflect Trump’s Growing Chances
Author:
S3 Research Team
With Trump’s election odds rising, long-dated bond yields and short positions in Treasuries have increased, signaling market anticipation of potential deficit impact. TLT and TYX now serve as election proxies without high squeeze risk.
Many commentators and market participants are writing that Trump’s policies could increase the deficit.
Over the past month as Trump’s odds of elections has increased, the long-dated bond yields have increased, and the prices have fallen.
At the same time, the short position in the IShares 20 Year Treasury Bond ETF (TLT) has grown.
The TLT and the Chicago Board Options Exchange Index (TYX) Index can be seen as proxies for a Trump win.
Other explanations for the middle east war and domestic economic data.
TYX Ten Year Yield Index rises with Trumps Victory Odds
This move in rates has not been sudden as if in response to an event, instead has been gradual, like the changes in the polls and prediction sites.
The bond market is less risky than DJT as a proxy, without the squeeze risk.
The move in the TLT and other bond ETFs (IEF and IEI) has been a two-sigma (standard deviation) even, where nothing else has moved this much.
The short position has grown rapidly to a high ahead of the election as the bonds have sold off and the yields have grown.
TLT short Position
Reflecting the position on the yield curve, the short position in IEF (Intermediate Bonds) grew all year and has been falling since July.
IEI short position spike in early September but has falling in October, making the long term the only position that has been increasing recently.
The position long term of higher yields with lower yields for other maturities reflects a view on the yield curve.
The long tail is more upward sloping, and the 10 year is now above the 1 year.
The increase in bond yields and short positions in long-dated Treasuries aligns with Trump’s election odds, indicating market positioning for potential policy impacts.
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