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Dollar rises vs yen to highest since July 27

10 November 2016
Dollar rises vs yen to highest since July 27

Global equities and US stock-index futures fell sharply.

Thirty-year bonds dropped more than 4 points s to yield 2.861 percent, up from 2.63 percent on Tuesday. Forecasts came from several of the Wall Street primary dealers as well as European analysts.

Financial markets in the US and around the world had been largely pricing in a victory for Hillary Clinton over Republican nominee, Donald Trump . Highlights that the event risk of the recent election is not quite over yet. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, surged up by 21 basis points to 2.072 percent. The 1.5 percent security due in August 2026 fell 11/32, or $3.44 per $1,000 face amount, to 96 25/32.

The gap between yields on five- and 30-year debt, a measure of the yield curve, fell to about 129 basis points, the lowest intraday level since November 2.

Treasuries declined, with benchmark 10-year yields on pace to close at the highest level since May, as preliminary US election analysis signaled Hillary Clinton may be garnering more early votes in key battleground states.

"It's been a clear duration "puke-out", said Tom Simons, money market strategist at Jefferies & Co in NY. "Big money doesn't want Donald". Most strategists in a Bloomberg survey said yields would fall Wednesday if Trump won and remain steady or rise on a Clinton victory. Clinton has likely earned more early votes than Trump in states including Florida and Nevada, according to analysis by Slate's Votecastr. It shows Trump with an early lead in Pennsylvania.

With the substantial increase on the day, the ten-year yield reached its highest closing level in almost ten months. Her chance of victory was at about 71 percent Tuesday, according to poll aggregator FiveThirtyEight. It last stood at US$1.0925, up 0.2 per cent.

"This is a very significant move", said Ian Lyngen, head of USA rate strategy at BMO. The OIS-derived probability tends to be a few percentage points lower than calculations based on fed funds futures. Donald Trump, the Republican candidate, is viewed as more unpredictable and has accused the central bank of playing politics under the leadership of Chair Janet Yellen.

"If Trump wins, and - given the uncertainty that brings - if markets are volatile in early December and uncertain about what a Trump administration looks like, the Fed may hold off", said George Goncalves, the head of USA rates research at Nomura Holdings Inc.

"It would mean more spending and therefore greater deficits and maybe more supply", Lou Brien, a market strategist at DRW Trading in Chicago.

A gauge of implied volatility in Treasuries climbed on November 4 to the highest since July, a possible sign of things to come if there's an election surprise. If Clinton wins, "you get a more muted market response".