Markets remain strongly inclined to trade a Red Sweep. 10y USTs still around 15bps higher on the day and 5s30s curve bear steepening. Market pricing for the Fed's terminal has risen by around 10bps to 3.73% for end-2025 (around 100bps of further easing including this week). The USD has continued to trade around 1.5% higher, TDS’ global strategies analysts note.
Markets remain strongly inclined to trade a Red Sweep
“EUR front end is rallying by around 9bps with strong bull steepening as markets expect the ECB will need to ease further. 10y Bunds will find it hard to disentangle from the outright moves in USTs, with the divergence theme seen more in the front end. So we favour a steeper 2s10s Bund curve (more bull than bear), with US swap spreads tightening as rates sell off, and EUR swap spreads wider vs the US.”
“This is mostly in line with our expectations. A declaration of a red sweep here should have less impact on rates after the initial market reaction. Risk assets are more likely to trade with a stronger bias, with S&P futures currently up almost 2%. We think in this case the focus will quickly turn towards the sequencing of policy: Fiscal, Tariffs and Immigration.”
“With tariffs the most likely first step, it is key to highlight with a broad brush that is inflationary for the US (we estimate almost 1pp added to CPI in 2025), while negative growth for the Eurozone and other trading partners. So central bank pricing is moving with that playbook for now. We think the key risk for markets from here comes from the results for the House. Markets are priced around 50/50 for a Red Sweep versus Divided Government.”
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