Morgan Stanley Doesn’t Expect to Know Winner on Election Night

by birtanpublished on September 12, 2020

Matt great to catch up with you sir just build on that a little bit more what you're looking for in the next couple of months thanks john well you know so obviously the election is an event

On uh investors minds and so we did some work to try to understand uh when we might actually know the results from you know from the november 3rd election and it seems to us based on the surveys that

We've done that a base case of knowing who the victor will be on november 3rd is uh seems a bit uh optimistic so we're expecting uh to know the result certainly in the

Week of the election but perhaps not on election night or early the following morning and um historically when when you have a situation like this doesn't occur very very often if uh

If only one time in recent memory risk markets respond responded poorly uh of course you you go back to what happened in november of 2000 and you you see very clearly that in the wake of

The uncertainty surrounding that election investors uh expressed that by reducing risk exposure uh in equity markets clearly caused a bit of a flight to

Quality into the treasury market um and so you know that's something that we're looking at right now john well matt let's build on that the flight equality and where the treasuries are still a part of that story

And in the words of muhammad alien offer you those risk mitigating characteristics that you might want in a wrist drawdown on the screen right now 10 minutes away from the opening bow equity futures on the nasdaq negative

3.2 and we do have a bid into the bond market treasury yields are down around about four basis points on tens down six basis points on 30s now as far as you're concerned looking at treasuries right now will

They continue to offer what they have typically always offered when risk assets do poorly i i believe so john i i think we we saw this very clearly back in march uh not necessarily in the treasury market

Uh although of course treasuries did very well uh the starting point was from a much higher yield level than we have today which is i think to your point but when we looked at let's say the

German boon market back in march german boone deals started out extremely low and went even lower in fact the 30-year uh german buxel traded down to its overnight financing rate in other words

Uh people will not were not only willing to accept a negative yield at that time but they were willing to accept a negative yield below its overnight financing rate uh which meant that there would be no carry

For a levered investor uh into that paper so you know the corollary in the treasury market would be akin to the 30-year treasury going from 1.4 percent which is where it is today

Uh down to about 12 basis points so that 100 basis point decline in the 30-year treasury yield would offer you a total return uh in sort of in the context of uh you know 17 18 that will

Go some ways to mitigating any type of uh bear market in in in equities at this point so i do think that longer duration treasuries will still offer you that protection

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