The US dollar dipped on a softer ISM manufacturing index but it has stormed right back.

The fuel is coming from the bond market where 10-year Treasury yields are now up 12 bps on the day and more than 20 bps since the post-PCE lows on Friday.

USD/JPY is at a fresh 34-year high, up 64-pips to 161.46 and earlier gains in commodity currencies are at the lows, with some help from a stock market that hasn’t opened as strongly as hoped.

So what’s behind the rout in bonds despite softer inflation and weaker growth data?

“The selloff remains a function of the economic
implications from a potential Trump victory in November and there isn’t
anything immediately on the horizon that would suggest one should fade the bear
steepener,” writes BMO today.

The market is likely pricing in a Republican sweep rather than some kind of split in congress. I don’t think the market has any illusions about fiscal discipline and that would be further pushed aside with a sweep that would clear the way for extending tax cuts and keeping spending high. Some may argue with that but yields have certainly been rising since Biden’s poor debate.