Why Would Rates Care About a One-Party Sweep?

Our morning commentary resulted in widespread questions regarding the "red sweep" being associated with higher rates.  Half of those were born of genuine curiosity.  Half were incredulous.  As ever, our goal is to convey what's moving markets and why, and it would be nearly impossible for anyone to be less interested in bringing politics into that endeavor, but alas, sometimes it's a thing.  Today's recap video has a thorough analysis of the topic and should help clear up any questions created by the AM commentary.  

For those who don't have the time or inclination, here's the gist: it's not about a red or blue sweep.  It's just about a sweep.  A political party with full control of the government faces fewer hurdles in creating situations resulting in lower net revenue and higher Treasury issuance.  Note: lower net revenue can be driven by too much spending (typically associated with a blue sweep) or insufficient revenue due to something like lower taxes (obviously already associated with a red sweep).  On that note, the 2017-2018 example (which involved a sharp sell off after the election and additional weakness upon passage of the tax bill) is fresh on investors' minds.  Indeed, one need only consider that example to understand rate pressures associated with a sweep. A lot of the bond weakness seen in recent days is the market telling you it would not be as surprised as it was in 2016.  

Despite these generalities, the realities of running the government can't be easily reduced to such tidy points.  That hasn't stopped the market from trying.  Bottom line: when the market is doing "something" that affects rates, our job is to convey that to you without opinion.  We have a strong track record of being as objective as our intelligence allows and always staying out of political opinion. If you were offended by the phrase "red sweep is the biggest fear for rates," don't shoot the messenger. That's been the trade, and we cannot wait until it's not anymore.