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.


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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