Treasuries trade in tightest range in 2 weeks as Fed buys debt

November Wait

“The market is waiting for November,” said Justin Lederer, an interest-rate strategist at primary dealer Cantor Fitzgerald LP in New York. “We expect volatility to pick up. We’ll see how the elections work out -- investors will be a little bit more focused.”

The idea that Democrats are big spenders and bad for bonds while Republicans are deficit hawks is being turned on its head in the $10.8 trillion market for U.S. Treasury securities.

Ever since Lyndon B. Johnson defeated Barry Goldwater for the presidency in 1964, yields on 10-year Treasuries have dropped about 40 basis points in the first month when a Democrat wins, and risen 19 after a Republican victory, according to data compiled by Bloomberg. When applied to the $264 billion in 10- year notes issued in fiscal 2012, the difference means $15.6 billion in interest costs over the life of the debt.

‘Business-Friendly’

This year’s race for the White House between President Barack Obama and Republican challenger Mitt Romney comes as the U.S. faces $1.2 trillion in mandated spending cuts and tax increases starting Jan. 1 if Congress can’t agree to reduce the deficit, which totaled $1.09 trillion in fiscal 2012.

Economic output would shrink by 0.5 percent next year, and joblessness climb to about 9 percent if the so-called fiscal cliff isn’t averted, the Congressional Budget Office said.

“It’s the natural expectation that Democrats would be less business-friendly and less positive” for equities, Brett Rose, an interest-rate strategist at Citigroup Inc. in New York who has researched elections and their impact on bonds, said in a telephone interview Oct. 9.

That’s “consistent with yields going lower. Republicans are more business-friendly, which leads to higher equity prices and higher Treasury yields,” he said.

Bloomberg News

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