Source: Wall Street See

Traders expect the US deficit to worsen, with no decrease in US Treasury bond supply, increasing hedges to fend off the risk of continued selling of US Treasury bonds.

On Wednesday, October 30th, Bloomberg reported that despite a significant amount of selling of US Treasury bonds in the past week, traders expect the selling to continue, pushing the 10-year US Treasury yield to reach 4.5% - the highest level since May.

According to media reports, the figure of 4.5% can be inferred from the open interest of options. In recent trading days, the open interest of put options has been increasing, and by the end of November, the exercise price will be around 0.20 percentage points higher than the current level, approximately 4.5%.

As the presidential election approaches, the market anticipates that regardless of the election outcome, the US federal government's budget deficit will remain at a high level. This is because the new president will push for fiscal stimulus measures, increase government bond supply, and the cost growth rates of programs such as medical insurance and social security exceed the federal government's income.

If the Republican Party gains control of the White House and both houses of Congress, the budget deficit will expand to its maximum level, as this would restore previous tax cuts and introduce new tax reduction policies. According to analysis, Trump's campaign proposal would expand the deficit by $7.5 trillion over ten years, more than double Harris' plan.

Currently, betting markets indicate an increasing chance of Trump's victory, leading to a rise in long-term government bond yields.

However, deficits are usually not the greatest influencing factor on US Treasury bond yields; bond investors pay more attention to the supply of US Treasury bonds. Gennadiy Goldberg, Head of US Rate Strategy at TD Securities, stated: "Because this is easier to quantify".

Today, the USA Treasury Department will announce the quarterly refinancing notice, disclosing its long-term debt issuance plan. The Wall Street Journal believes that in the short term, there will be no reduction in US bond auctions, as it is almost certain that the US government will maintain record-high debt sales in the next three months.

Some analysts even believe that the USA Treasury Department may suggest further growth in debt next year.

Currently, the USA bonds are mixed, with the yield on the 10-year US bond falling by 3 basis points to 4.246%.

As of the week ending October 28th, JPMorgan's survey of client US bond positions showed that short and long positions decreased by 4 and 2 percentage points respectively, shifting to neutral positions.

Editor / jayden