Fairly early in the domestic session, markets rapidly came to the realization that even if Biden wins the presidential election, the Senate is much less likely to end up with 51 or more democratic seats. That removes the biggest risks on the horizon for the bond market and traders traded accordingly. With election results still in limbo, the Fed coming up tomorrow, and NFP on Friday, bonds settled into a decisively sideways range (after that initial mega rally) to await their next source of inspiration. At the very least, it was a big victory in the fight to avoid 10yr yields moving quickly back above 1.0%. It remains to be seen whether it catalyzes a new push back in the other direction.
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20min of Fed 30yr UMBS Buying 10am, 1130am (M-F) and 1pm (T-Th)
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ADP Employment 365k vs 650k f'cast, 749k prev
Massive rally overnight as the blue wave met heavy red resistance. Biden could still win the presidency, but democratic control of the Senate looks highly unlikely at this point. Bonds love that. We also have traders who'd previously moved to the sidelines simply jumping back in the market. That's adding to the bond rally. 10yr yields now down 13bps to .764. UMBS 2.0 up over half a point.
3 hours later and not much has changed for bonds. In fact, the gains are holding up remarkably well (MBS still up over half a point and 10yr still down big (12.5bps now vs 13bps earlier). Stocks have added to gains significantly with S&P futures now up more than 3% from 5pm yesterday.
As the trading day winds down, we're left with the realization that there was one big reaction to election news priced in by 930am ET, and almost complete paralysis since then. In other words, markets got a big dose of clarity, made a big adjustment, and now continues to wait for ultimate clarity--however long that may take. No major changes in levels since last check.
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