Welcome the thoughts on the market. I'm Michael Zezes, head of Public Policy Research and Municipal Strategy for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public

policy and financial markets. It's Wednesday, October 21st at 1130 a.m. in New York.

What's going on with the bond market? As a fixed income analyst it always gets my attention when the

Treasury market moves as it has the past few months. The 10-year yield is up 0.3% and the 30-year

yield is up 0.4% since late summer. These are meaningful moves. so what gives? We think this is all about the

bond market starting to price in the fiscal policy path of the U.S. including the impact

on that path from the upcoming U.S. election. As we've discussed at length year before, three out of the four most likely election outcome

configurations enable an expansion of the US deficit by clearing a path for a trillion dollars

or more of COVID-19 stimulus relief.

And in the case of a clean sweep by either Republicans or Democrats,

additional expansion through pursuit of tax cuts or spending becomes likely.

Market prices of course reflect investors' expectations of the future, and so it makes sense that as we get closer

to the election, that Treasury yields could rise to reflect the increased possibility of

the impact of fiscal expansion. Greater supply of treasuries and increased

prospects for growth in inflation are all things that can push bond prices lower and

yields higher by increasing Treasury supply relative to demand. This is why we've cautioned investors to expect Treasury to remain under pressure during election season.

It's one of these straightaways we identified in our recent report, U.S. election road rules for investors.

Straightaways are asset classes where election outcomes either keep that market on the same

path or accelerate it along that path.

We also identify other asset classes as detours, where an election outcome could cause its market to deviate temporarily from its current path,

creating an opportunity to buy the dip or sell the rally.

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