Polymarket's Influence on the US Bond Market
Polymarket's Rapid Rise
Polymarket, an online betting exchange, has made a significant impact on the digital landscape. It has quickly become one of the most downloaded apps on the Apple platform and has started to influence mainstream media and public opinion.
Polymarket's Impact on Bond and FX Markets
Polymarket's influence extends beyond the digital world. According to Masaki Kondo of Bloomberg, the betting exchange has become a key player in setting near-term price signals for the $28 trillion marketable US Treasury markets and FX markets. This is due to the fact that both Treasuries and the Mexican peso appear to be pricing in a rising probability of Donald Trump winning the US presidential election, as indicated by Polymarket, while traditional polls still show Kamala Harris in the lead.
Polymarket's Influence on Bond Prices
Polymarket's influence on bond prices is evident. The 10-year yield has been closely tracking the perceived odds of a vote victory between Trump and Harris. This difference has reached almost 30% points, according to data from Polymarket. Even John Authers of Bloomberg acknowledges Polymarket's role in setting bond prices.
Polymarket's Influence on Yields
Polymarket's influence extends to the yields market. The 10-year yield soared almost 80bps in about a month after Trump’s last victory in November 2016. The market is now aggressively pricing in a Trump presidency.
The Impact of a Trump Win on Yields
A Trump win leading to higher yields would underscore the observation that a resilient US economy, one where deficits will only grow, will prevent the central bank from cutting interest rates as fast as a slowdown in inflation would suggest. For the Mexican peso, Trump’s proposed tariffs on imports is seen as a major negative.
Future Impact of Polymarket
For now, it's important to watch how fast and how high yields will rise along with odds of a Trump presidency, and when stocks will finally notice the ongoing rout in the bond sector. Goldman trader Ryan Sharkey warns that historically, a 2 standard deviation move in US 10-year yield, equivalent to around 60 bps today over a month, is when equity market returns start to get hit.
Bottom Line
Polymarket's influence on the bond and FX markets is undeniable. Its rapid rise and influence on price signals and yields underscore the changing landscape of financial markets. As the market continues to evolve, it's crucial to keep an eye on entities like Polymarket that are shaping the future of these markets. What are your thoughts on this development? Share this article with your friends and sign up for the Daily Briefing, which is delivered every day at 6pm.
