Halister News

(Bloomberg) -- Under likeliest scenario, Clinton victory (70%) and Republican-controlled House, Democratic-controlled Senate (40%), expect a “relief backup” in UST yields and curve steepening, Citi strategist Jabaz Mathai says in note.

• 10Y yield should rise 10bp on Wednesday on that outcome, regardless of party controlling Senate
  • Curve should steepen initially on higher deficit expectations, however Fed rate hike expectations would tend to flatten curve
  • If Democrats win control of Senate, 10Y yield should fall by 6bp
• Trump victory (27%) would be negative for risk assets, especially in emerging markets; dollar should rally, but weaken vs JPY
  • 10Y yield should fall 18bp on Republican sweep, 16bp if Democrats control Senate
• “Most disruptive of all potential outcomes” would be a contested election; 10Y yield should fall 40bp in that case
• Clean sweep by either party “would be construed negatively by markets” because of potential for policies that “may not be positive for economic growth”
  • Democratic sweep should cause UST curve to flatten led by long end on prospect of increased regulation and higher taxes