It's not all about the US election
It is going to be an intense week because there are decisive events for the bond market beside the US elections. On the very next day after the election, the US Treasury unveils its quarterly bond issuance plan, following which, on Thursday, there will be the FOMC meeting. Volatility is undoubtedly going to be high; however, it is tough to understand how it will unfold. Even though in the long-term, it is clear that the US yield curve will continue to steepen, in the short-term, there might be a sensible fly to safety that can push yields lower.
Amid a contested election, a rally in Treasuries will be most likely be reinforced by investors unwinding their large short positions in Treasury futures.
Looking at the 10-year Treasury yields in the graph below, we see that they have been trading in an ascending wedge since August. In case of a fly to safety, we might see the 10-year yields testing the support line at 80bps. At the same time, the long part of the yield curve will experience the majority of the volatility, and the 30-year Treasury yields can fall as much as 15bps.