Caixin News Agency, October 25th (Editor Xiaoxiang) On Thursday, despite the slight decline in the yield of the 10-year US Treasury bonds from the three-month high, the cautious atmosphere in the US bond market still remains strong. With the approaching November US election, many Wall Street professionals are not inclined to make major bets. Meanwhile, due to the economic policies of both presidential candidates from the two parties potentially leading to further expansion of the US fiscal deficit and heavier sovereign debt burden, the US 1-year sovereign CDS has risen to the highest level in almost a year.

As shown in the following chart, the 1-year CDS has now risen to about 47 basis points, reaching the highest level since November of last year. This increase in default risk signals that investors are becoming more cautious about the future market outlook. The rising cost of CDS typically reflects market concerns about credit risks, prompting investors to seek hedging mechanisms.

The fiscal think tank, the Committee for a Responsible Federal Budget, estimated earlier this month that Harris' economic plan would increase government debt by 3.5 trillion US dollars over ten years, while Trump's economic plan would skyrocket debt by 7.5 trillion US dollars.

The latest data released earlier this month by the US Department of the Treasury shows that for the 2024 fiscal year, the US fiscal deficit has exceeded 1.8 trillion US dollars, the third highest in history. The largest driving factor of the deficit is the significant increase in US Treasury interest costs, reaching 1.133 trillion US dollars, marking the first time the debt interest of the US federal government exceeds 1 trillion US dollars.

Currently, the US fiscal budget deficit has exceeded the Gross Domestic Product (GDP) for two consecutive years, with the proportion for the 2024 fiscal year at 6.4%, and for the 2023 fiscal year at 6.2%. Many industry insiders believe that during non-world war or economic recession periods, this ratio is 'an exceptionally heavy burden' for the USA.

Looking ahead to the new US government after this year's election, regardless of whether it's Trump or Vice President Harris who takes office in the White House, the US budget deficit is expected to worsen. Increased government spending may lead to an increase in US bond issuance. Trump's tariff and immigration policies are also expected to exacerbate inflation.

This may partly explain why investors are generally cautious about buying US Treasury bonds before the November 5th US election.

On Thursday, although the yields of various maturity US bonds generally fell, the yields across the curve all remained above the 4% threshold. Among them, the 2-year US bond yield fell by 0.1 basis points to 4.092%, the 3-year US bond yield fell by 1.4 basis points to 4.027%, the 5-year US bond yield fell by 2.3 basis points to 4.04%, the 10-year US bond yield fell by 3.4 basis points to 4.217%, and the 30-year US bond yield fell by 4.6 basis points to 4.476%.

In recent weeks, various gambling markets including Polymarket have shown that Trump is more likely to win the presidential election, and Republicans are also more likely to win majorities in the Senate and House. Vail Hartman, the US interest rate strategist at BMO Capital Markets in Melbourne, said, "The market seems to be increasingly inclined to assume that the Republicans may score a big victory."

In terms of bond sales, the US Treasury Department sold $24 billion worth of five-year Treasury Inflation-Protected Securities (TIPS) on Thursday with weak demand. Investors needed a premium to purchase these bonds, with the final auction yield set at 1.67%, higher than the approximately 1.64% in the secondary market at the bidding deadline.

Editor / jayden