Georgia Elections: Weaker Dollar And Tsys In Dem Sweep (1/3)

Sell-side analyst consensus appears to be for the Republicans to win at least one of the two special Georgia Senate elections, which are being held today.

• A Democratic sweep of both seats and thus control of the White House and Congress is seen as the 'risk scenario' (despite now being a roughly 50/50 proposition per betting markets) and thus not viewed as fully priced in, and could usher in some major market moves at least initially. Though everyone seems to acknowledge the risk that final results may be elusive for a few days.
• Broad consensus is that Tsy yields would knee-jerk higher with the USD weakening in a Dem sweep scenario, as more fiscal stimulus is priced, but opinions diverge slightly on the medium-term outlook.
• With no particular outcome fully priced, a Republican win in either election is also seen as entailing market movement though more modest, potentially a retracement lower in Tsy yields and a stronger dollar (at least initially).
• TD: Sees Dem sweep leading to a bear steepening in the curve w 10Y Tsys going above 1%. Breakevens can rise a bit further as more fiscal stimulus should translate into higher inflation risk premium. USD could see further downside as "odds of another Covid relief package will outweigh downside associated with a potentially more ambitious Biden agenda". If Republicans win at least one seat, it would lead to a small bull flattening move, w 10s moving back to 80-85bps, with the decline led by breakevens - but still would not be enough to prevent ongoing negative USD trend.