U.S. Government bonds gain ahead of Fed policy decision; Presidential election uncertainties lend support

The U.S. Treasuries saw further gains across much of the curve on Wednesday ahead of the Federal Reserve interest rate decision; no change is expected from the FOMC at the November meeting and the statement could go a long way in setting up markets for a move in December. Also, United States election worries boosted demand for safe-haven assets.

The yield on the benchmark 10-year Treasury note fell 2-1/2 basis points to 1.797 percent, the yield on long-term 30-year Treasury dipped 3 basis points to 2.541 percent and the yield on short-term 2-year note slid 1/2 basis point to 0.825 percent by 12:30 GMT.

Market also remained concerned of a Brexit-like outcome at the presidential election on November 8. Also, it is widely expected that the Federal Reserve is unlikely to hike rates at this week’s FOMC meeting on November 2 before the US presidential election.

Moreover, recent polls showed a tighter race between the two Presidential candidates. The RealClearPolitics poll displayed that Democratic nominee Hillary Clinton’s lead over her Republican rival Trump has narrowed down to 2.2 percentage points from more than 7 points two weeks ago.

The FOMC monetary policy statement will be published today at 18:00 GMT. Despite the pronounced shift in the direction of hawkish commentary from FOMC officials we see the November meeting as likely leaving rates unchanged ahead of the United States election, despite calls by policymakers to treat all meetings as live.

“We expect it to maintain the target range at 0.25-0.50 percent, in line with consensus, due to the presidential election on 8 November,” said Danske Bank in its latest research report.

The Committee continues to closely monitor inflation indicators and global economic and financial developments (similar to what was seen in the July statement). On balance, this statement should not be seen as particularly shocking, given the mixed performance in data seen thus far in the second quarter of 2016. However, it also appears to go a long way in setting up a likely 25 basis points hike before year-end.

Meanwhile, the S&P 500 Futures traded 2.75 points lower at 2,101 by 12:30 GMT.