10-year U.S. yield drops sharply after elections show no clear winner

A 10-year U.S. Treasury yield dropped sharply on Wednesday after initial results of the U.S. presidential election didn’t yield a clear winner to send markets into the risk-off trading sentiment.

Fundamental analysis: The largest single-day decline since March

The prospect of contested elections was ranked as low probability yesterday as polls showed the Democratic candidate Joe Biden leading the race. However, a tight race sent the 10-year government bond yield from a five-month high of 0.945% to 0.758%.

Today’s drop of more than 15 basis points is on the way to become the largest since the pandemic-fueled market crisis from March. 

Investors started to shift their holdings into low-risk assets after Trump falsely said that he won the race and warned he will push election results to the Supreme Court. 

One thing is for sure - the menu of likely outcomes has narrowed severely, says John Hardy, head of FX Strategy at Saxo Bank. 

Technical analysis: Large correction lower

The uncertainty is likely to increase demand for safe haven assets with a 10-year yield now threatening to break below the ascending trend line near 0.76%. Yields move inversely to prices.

The 10-year yield has also now broken below the 100-DMA as it targets 200-DMA next amid the heightened uncertainty.

Summary

Investors are shifting their assets to safer havens amid a huge uncertainty about the outcome of 2020 U.S. presidential elections.