Investors Ask How Much Additional Fed Tightening Bond Prices Reflect — Market Talk
0638 GMT - For investors, the question is no longer simply whether the Federal Reserve will hike interest rates, but how much additional tightening is already reflected in bond prices, says Eric Souders at Payden & Rygel. Markets continue to price additional tightening ahead and that is broadly consistent with Payden & Rygel's expectations. "If anything, somewhat more tightening than we anticipate," the director and portfolio manager says. This backdrop creates an increasingly attractive risk-reward proposition at the front end of the U.S. Treasury curve. "Two- to three-year Treasurys offer yields well above cash and three-month Treasury bills, providing a meaningful cushion against further increases in rates," Souders says. Yields can rise further without necessarily producing a negative total return, he adds. ([email protected])0629 GMT - U.S. midterm results mean less certainty around future stimulus and potentially more uncertainty around regulation, says Saxo Bank chief investment strategist Charu Chanana in a note. A Democratic Congress would constrain Trump's ability to pursue additional fiscal expansion and legislative tax measures, she adds. But it cannot simply reverse the president's entire economic agenda. The immediate reaction reflects three concerns, including reduced scope for further fiscal support, greater oversight of AI and Big Tech, and a potential slowdown in the growth momentum underpinning U.S. exceptionalism, she says. The market may be too quick to assume that a Democratic Congress translates directly into weaker growth, she says. ([email protected]; @ivy_jiahuihuang)0614 GMT - Regulatory certainty is the missing piece for the cryptocurrency industry to unlock widespread adoption, according to Ryan Kirkley, chief executive of Global Settlement Network. He says institutions need clear, enforceable rules around custody, asset ownership, settlement finality and investor protection before committing significant capital. "A shift in congressional control could actually create an opportunity for bipartisan legislation that gives institutions the confidence to invest for decades, rather than operating under guidance that can change with the next administration," he adds. ([email protected])0558 GMT - The U.S. Treasury is expected to make no changes in coupon auction issuance sizes for the November to January quarter but it will likely revise its forward guidance, paving the way for supply shifts next year, HSBC's Dhiraj Narula says in a note. The Treasury will release details of issuance composition in its quarterly refunding announcement on Wednesday. Starting May 2027, HSBC sees a modest cut in 20- and 30-year bond supply and higher issuance in two- to five-year notes. ([email protected])0444 GMT - Asian currencies are mostly stronger against the greenback as investors look to the U.S. midterm elections, where the Democrats look on the verge of taking both the House and the Senate. Maybank analysts think that a Democrat flip on the House or both the House and Senate could lead to more scrutiny on artificial intelligence development. This could dampen the AI rally and weaken the dollar, the analysts say. Also, the dollar may weaken near term as a fall in U.S. yields could hurt the dollar's attractiveness as a destination for carry trades, they say. The U.S. dollar is 0.7% lower at 157.61 yen and 0.5% lower at 1338.20 won, LSEG data show. U.S. Treasury yields have weakened in Asian trade, potentially a move into safety as equity markets have dropped.([email protected])0409 GMT - Hong Kong's 2026 economic growth likely to be the strongest in past five years, according to UOB's economist Ho Woei Chen in a research note. The city's 3Q GDP growth accelerated to 5.2%, thanks to good exports and other factors, UOB points out. "The semiconductors trade and Hong Kong's role in the broader global AI supply chain continued to underpin the city's economic growth," the bank says. UOB revises up its 2026 GDP growth forecast to 5.0% from 3.9% and 2027's to 3.0% from 2.4%. This will be the fastest growth since 6.5% expansion recorded in 2021, UOB says.([email protected])0409 GMT - Japan's Nikkei Stock Average extends losses, hitting a five-month low as U.S. midterm election results roll on. Chip-related stocks are falling sharply. Kioxia Holdings is down 14%, SoftBank Group is 9.2% lower and Advantest is off 9.1%. The Nikkei is 4.2% lower at 60454.75, leading declines in Asia, after briefly falling to 60227.81, its lowest intraday level since May 20. The 10-year Japanese government bond yield is flat at 2.770%. ([email protected]; @kosakunarioka)0334 GMT - The biggest reaction in financial markets to the emerging blue wave in the U.S. midterm elections is in tech-sensitive shares, with the Nasdaq100 Futures down by 2.22%. The "threat to tech" seems to be the main theme emerging from the election result, says Sean Callow, senior currency strategist at ITC Markets. Traders are concerned about a growing backlash toward the construction of artificial intelligence data centers, while the sector is likely to face greater regulation. ([email protected]; @JamesGlynnWSJ)0314 GMT - Gold buyers are driving up futures volumes in Asia, likely for a few reasons, according to Chris Weston, head of research at Pepperstone. The U.S. dollar index is weakening, while "a punchy decline in both nominal and real U.S. Treasury yields" also appears to be providing support, he says. Buyers are likely seeking protection, too, against a potentially more unpredictable Trump administration, says Weston. He reckons a potentially decisive Democratic sweep raises the risk of a more confrontational administration, particularly on the international stage. "There are several moving parts here, and we'll see how Chinese buyers respond as the day builds," Weston says. Spot gold is up 0.1% at $3,932.82/oz. ([email protected]; @RhiannonHoyle)0247 GMT - China's PMI data suggest that economic activity lost momentum in October following September's pick-up, says Capital Economics analyst Nguyen Hoang Nam in a note. Manufacturing softened a touch, but foreign demand still looks resilient. More worrying was the sharp reversal in construction activity and expectations, suggesting that firms have become less confident that fiscal support will provide a substantial boost over the rest of the year, he says. Services activity was broadly stable, while labor market conditions saw some improvement, he adds.The analyst expects some 4Q support from faster fiscal spending, but the slow rollout raises the risk that spending falls short of this year's budget target. ([email protected]; @ivy_jiahuihuang)0241 GMT - Early financial market reaction to the U.S. midterm election can be characterized "as a bit of a flight to quality out of equities into bonds," says Andrew Canobi, director of fixed income at Franklin Templeton, Australia. If the Democrats take control of Congress it will probably be seen as a constraint on President Trump's growth agenda around artificial intelligence and the resources sector, he adds. Australian three-year government bond yields are 15 bps lower since the start of the week as traders sense the end of interest rate hikes by the Reserve Bank of Australia might be at an end, he adds. ([email protected]; Twitter @JamesGlynnWSJ)0239 GMT - It's looking like a blue wave is unfolding in the U.S. midterms, which could mean more regulatory controls, particularly around AI, and fears that the election result could lead to higher taxes should it be a forerunner of the Democrats retaking the White House in 2028, says Shane Oliver, chief economist at AMP. This would be potentially a negative for U.S. equities and the U.S. dollar, which appears to be playing out, he adds. That said, a win for the Democrats is hardly surprising, so markets should have discounted it to some degree, Oliver says. ([email protected]; @JamesGlynnWSJ)