By Rachel Rosenthal
HONG KONG--Yields on 10-year U.S. Treasurys fell sharply as initial results showed Hillary Clinton and Donald Trump splitting states, as races tightened in battlegrounds like Florida.
Yields on 10-year U.S. Treasurys were last trading at 1.7675%, down from as high as 1.8960% earlier Wednesday, according to Thomson Reuters. That compares with 1.867% late Tuesday, the highest close since May. Bond prices had slipped in recent days as markets see a greater chance for a Clinton victory, pushing investors out of government bonds, but the close contest could draw investors back into saferassets. Yields rise as prices fall.
Yields on Japan's benchmark 10-year government bonds slipped to negative 0.063% from as high as negative 0.059% earlier Wednesday. Yields in Singapore and Australia also fell slightly from earlier trading levels. Investors are hesitant to place any big bets before more results start to come in.
Traders will be watching results from Florida, an critical battleground state. Polls have closed in 29 states and Washington, D.C., though markets are still awaiting results in tight races including Georgia, North Carolina, Michigan, Ohio, Pennsylvania and Virginia. Mr. Trump needs to carry most of the contested states to secure a path to the White House.
Mrs. Clinton is widely perceived by markets as a known quantity. In recent days, evidence appearing to boost her chances of victory has encouraged buying of riskier assets, like stocks, and selling of safer assets, like bonds and gold. The S&P 500 notched its biggest daily gain since March on Monday, ending its longest losing streak in more than three decades, after the Federal Bureau of Investigation said it found no new evidence to warrant charges against Mrs. Clinton related to her use of a private email server. The benchmark ended up 0.4% on Tuesday.
Donald Trump, her Republican opponent, remains a wild card. His protectionist stance on trade and lack of political experience could introduce a period of uncertainty and volatility for markets, analysts say.
The market shock of a Trump win could derail the Federal Reserve's plans to raise interest rates in December, some analysts say. Any dent in U.S. growth from a surge of protectionism and faltering global trade could incite the central bank to resume a more dovish stance.
The perceived continuity of a Clinton White House, meanwhile, is broadly expected to keep the Fed on track, analysts say. In the Fed-fund futures market, the odds for a December Fed rate increase rose to 81.1%, up from 71.5% a day earlier, according to data from CME Group.
Memory of the short-lived market turmoil after Brexit remains fresh, so bond investors have been reducing their risk in recent weeks, fleeing emerging-market debt and selling longer-dated bonds.
"This is not an environment where you're going to make big bets," said Jim Veneau, head of Asia fixed income at AXA Investment Managers in Hong Kong.
Write to Rachel Rosenthal at Rachel.Rosenthal@wsj.com
(END) Dow Jones Newswires
November 08, 2016 21:45 ET (02:45 GMT)
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