Stock, currency and bond markets respond (up, up, yield up) on news of likely Democratic control of the Senate
Figure 1: DJIA, as of noon CST, 1/6/2021. Source: Tradingeconomics.com.
Stock market jumps – suggesting expectations of higher present value of dividends (despite perhaps higher corporate taxes, see this post). Interestingly, the dollar jumps as well, with some zig-zagging. This might reflect revised expectations of faster economic growth.
Figure 2: DXY trade weighted value of USD, as of noon CST, 1/6/2021. Source: Tradingeconomics.com.
Interestingly, the rise of the 10 year Treasury yield – by around 15 bps – suggests a yield curve steepening that would be associated with an upward revision in growth (it’s also consistent with a greater budget deficit).
Figure 3: Treasury 10 year yield, %, as of noon CST, 1/6/2021. Source: Tradingeconomics.com.
Note: Time scale is one year on Figure 3.