Risk of sharp yield swings hangs over US bond market

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Wall Street dealers are split over whether debt sales will set another record high or remain at current levels

The world’s biggest bond market is about to enter a make-or-break week that goes well beyond the contentious battle for the White House.

It’s a crucial stretch for a Treasuries market that’s on pace for its best performance since 2011. Amping up the potential for volatility, hedge funds and other speculators that use leverage to boost returns have a record wager on losses in bond futures. They could be forced to exit those bets, fuelling a Treasuries rally, if the electoral result leaves investors slashing expectations for a major virus-relief package that boosts growth prospects.

A sustained climb in long-term yields would upend one of the market’s strongest years in the past decade. US Treasuries have earned about 8% in 2020, according to Bloomberg Barclays index data. The yield curve may flatten if others — such as Barclays, Jefferies and Societe Generale — prove prescient in forecasting no changes. Their views are mostly based on the uncertainty over additional pandemic-relief spending, while the Treasury is sitting on a near-record pile of cash.

 

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