By Paul J. Davies 

Investors in Treasury markets showed signs of nervousness Tuesday ahead of the first debate between the candidates in this year's U.S. presidential election.

Yields fell on both 10-year U.S. government bonds and Treasury inflation-protected securities, known as TIPS. The difference between the two yields, called the break-even rate, shrank, indicating a fall in inflation expectations in markets.

That rate has been the most reliable predictor of equity-market moves this year, according to analysts and investors. When the rate falls, stocks tend to also fall.

Yields on ordinary Treasurys slipped to 0.643% from 0.661% on Monday. Yields on TIPS, called real yields, slid to minus 0.978% from minus 0.961%. That left the break-even rate slightly down at 1.62%, according to Tradeweb.

The decline in the break-even rate since its peak of 1.8% at the end of August, and the stock market's stumble in that same period, has highlighted investors' concerns about the economic growth outlook as a result of rising Covid-19 infections and worries about a slowdown in stimulus efforts from governments and central banks.

The falls Tuesday ended the more positive direction of the past couple of days.

Mariusz Banasiak, head of local currency, rates and FX at U.S. fund manager PGIM's fixed-income unit, said that whoever wins the U.S. election, he expects long-term weakness for the U.S. economy.

"I think investors will focus on the fiscal deficit and the medium-to-long-term growth outlook is pretty poor," Mr. Banasiak said.

Real yields have risen from their all-time closing low of less than minus 1.1% at the end of August, according to Tradeweb, while yields on ordinary Treasurys have barely moved.

Investors have been focusing their attention and money more on break-evens and real yields, because yields on normal Treasurys have fallen so low that there is little room for them to drop further.

"It is hard to make an argument that nominal yields move much lower from here," said Maya Bhandari, multiasset portfolio manager at Columbia Threadneedle Investments.

She has built up larger holdings of inflation-protected Treasurys in recent years, she said, but she recently sold some to lock in profits because there had been such a dramatic run-up in the break-even rate over the summer.

Since the start of June, the 10-year break-even rate rallied from about 1.2% to a peak of 1.8% at the end of August, helping to drive the rally in equities.

Tuesday's presidential debate between President Trump and his Democratic rival Joe Biden is seen by some analysts as critical for the level of uncertainty in the growth and inflation outlook.

"The pandemic has helped create historically challenging circumstances for the election, including a leap in mail-in voting that could complicate vote counting, delay results and trigger legal challenges," wrote Mike Pyle, global chief investment strategist at the BlackRock Investment Institute, in a note. "We see a material risk of a contested election or a delayed result. Election Day could turn into weeks or months."

Write to Paul J. Davies at


(END) Dow Jones Newswires

September 29, 2020 14:15 ET (18:15 GMT)

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