Trump’s Election Tweets Likely to Spark Volatility in US Treasurys: JPMorgan

September 25, 2020 Updated: September 25, 2020

President Donald Trump’s election-related tweets are likely to drive volatility in the U.S. Treasury market, according to the JPMorgan Chase & Co. analysts who created the Volfefe Index.

Named after Trump’s mysterious “covfefe” tweet from May 2017, the index seeks to gauge the impact of the president’s tweets on the world’s biggest funding market by tracking moves in interest-rate options.

“Presidential tweeting remains a statistically significant driver of volatility and options pricing in interest rates,” JPMorgan analysts Henry St John and Joshua Younger wrote in a note cited by Fox News. “Should the topic of those pronouncements turn to topics to which markets have been more sensitive ‒ Covid-19, the election, and geopolitics, for example ‒ it could be a bullish factor for volatility heading into November.”

Analysts at JPMorgan created the measure in September 2019, with Bloomberg reporting at the time that the analysts found the Volfefe Index accounted for a “measurable fraction” of moves in interest rate derivatives known as swaptions, with a larger impact on shorter-term government securities like two- and five-year Treasury notes.

Other analysts have also sought to gauge the impact of Trump’s tweets on markets, with Citigroup quantitative foreign-exchange strategist Sukrita Chatterji telling Bloomberg shortly after JPMorgan launched the Volfefe Index that Citi’s own analysts found that the president’s missives on Twitter were typically followed by a period of higher volatility in global currency markets.

Noah Hamman, AdvisorShares CEO, told Yahoo Finance in a Sept. 25 interview that Trump’s recent remarks about the possibility of a contested presidential election could also drive volatility in stocks.

“It’ll increase the volatility,” Hamman said, adding that while he hopes the result of the election will be “definitive” and it won’t be adjudicated by the Supreme Court, he added that, “people and investors are bracing for volatility.”

The VIX volatility gauge, often dubbed the Wall Street fear gauge, which tracks implied volatility in the benchmark S&P 500 equities index, shot up by about 10 percent on Sept. 23, the day Trump, at a press briefing, declined to endorse an orderly transfer of power.

When asked about whether he would “commit here today for a peaceful transferal of power after the November election,” Trump said it isn’t clear what will happen.

“We’re going to have to see what happens,” he said. “You know that I’ve been complaining very strongly about the ballots, and the ballots are a disaster.”

The president has often expressed concerns about voter fraud amid a surge in mail-in voting as well as nationwide riots and unrest.

Later, on Sept. 24, Trump said he’ll respect the November election results if the Supreme Court rules that Joe Biden won.

On the same day, White House Press Secretary Kayleigh McEnany added further clarity to the issue, saying at a press briefing that Trump “will accept the results of a free and fair election.”

Meanwhile, some experts contend that some U.S. stocks could face more volatility next week as Trump and Biden face off in their first debate ahead of the November election.

A perceived victory in Tuesday’s debate by Biden might boost stocks related to global trade and renewable energy, while a perceived victory by Trump could benefit fossil fuel and defense companies.

If one candidate emerges stronger on Tuesday, “the debate could be an individual stock and sector play,” said Jack Ablin, Chief Investment Officer at Cresset Wealth Advisors.

Many investors view Biden as more likely to raise taxes, and see a second term for Trump, who favors deregulation, as better for the overall stock market. At the same time, a Trump win could spark concerns over ramped up tensions between Washington and Beijing, as the president has taken China to task for a range of trade abuses, including forced technology transfers and intellectual property theft.

Reuters contributed to this report.

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