Goldman Sachs Look At The Potential Follow-Through From The Election

Goldman Sachs note that "unified Democratic control of government would imply the most upside to yields (out of the potential election outcomes), largely reflecting the possibility of substantially higher spending. In this case, we not only expect a large move in the week following the results, but some follow-through as well, with a cumulative 30-40bp increase in 10y yields over the subsequent month. It is possible that concerns about higher taxes and greater regulation dominate the initial market response, with risk sentiment deteriorating and yields moving lower. In that event, we would view those lower yields as a good opportunity to go short duration. In the other potential scenarios with clear results, such as a divided government, we see a more modest sell-off, given the higher odds of a small fiscal package post-election. If, on the other hand, the results are contested or delayed for an extended period, we could see yields decline from current levels, potentially towards previous lows (50bp for 10y USTs) in the event that risk sentiment turns substantially negative."