Credit Suisse On Last Night's Election Results... And The Bond Markets

Tyler Durden's picture

Credit Suisse's head of US rates, Carl Lantz, is a usual suspect when it comes to dispensing bond market commentary. What we did not expect him to do, is also analyze last night's off-cycle political results. He does both in the note below.

From Credit Suisse's Carl Lantz

Last night's off-off-cycle election results are not quite so easy to draw clear implications from. The media is generally painting the results as an embrace of moderation and confirmation of a generally damaged republican brand.

I think that characterization is more or less true but we had a limited number of elections and each had its own "special factors" at play.

A moderate republican - Chris Christie - won the governorship in New Jersey and a moderate (relative to his competitor at least)  democrat won in Virginia. Interestingly however the Terry McAuliffe victory in Virginia was much narrower than expected versus his hard-right competitor and the results may have gone the other way if the libertarian third-party candidate had note siphoned off circa 7% of the vote.

Back to New Jersey, the results likely would have been tighter - but still a Christie victory had the Governor not moved the Senate election to avoid the Democratic turnout associated with Dem Corey Booker's big win last month.

Of much interest was the special primary in Alabama for the US House. A moderate republican (Bradley Byrne) backed by the "establishment" and business overcame a strong challenge from a Tea Party insurgent (Dean Young). The general election, to be held later this year will not be of consequence in the heavily republican district. Had Young been victorious it would have added to the already substantial numbers of Tea Party supporters in the house.

Finally there is NYC. The first Democrat - Bill DeBlasio - was elected mayor since 1989 in a town that is 6-1 democratics. In the wake of the crime-ridden 80s, New Yorkers turned to republicans and stayed there post 9/11. Over time Bloomberg of course became less Republican, in name (formally going independent) and policy, but DeBlasio will be a big shift. Now he goes to Albany to seek approval for a tax increase to fund universal pre-K among other progressive policies.

Perhaps this is the start of the Democrat version of the Tea Party - both are reactions in some measure to widening income inequality and a frustration with politics as usual. The proposed solutions couldn't be more different, however, and it seems that despite talk of a victory for moderates the country remains very polarized.

Enough politics. On to the markets.

The rates market continues to deliver very little "net" volatility as we move into the second month of the fourth quarter. Despite the recent back-up we are not even back to the levels seen before the October 17th debt deal. Gamma has been cheap enough that well timed purchases and delta hedges have been profitable. But no clear trend is in place. Just when it felt as if the 2.47-2.50 level would give way to still lower yields the data came in significantly better than expected  (especially the survey data).

The caveat here is that the survey data have not tracked the "hard data" terribly well in this cycle. Its hard to see the economy falling down to new lows on our data surprise index {NXTW MDSICSUS Index GP <GO>}- or seeing a sharp move to payroll numbers outside the continued range of 120-220 on payrolls that has held about 80% of the time over the past three years.

Given the price action and the non-manufacturing ISM employment component we are inclined to think the market is set up for a stronger than consensus number on Friday. If we cheapen much more, the risks will become more cleary asymmetric.

For now we prefer steepeners into the refunding auctions next week - announcement at 8:30AM today. We wrote this up on Monday and have seen interest in the trade which has moved about 1.5bps in our favor. Steepening during the sell-off yesterday was a reasonable indication that supply is starting to weigh as generally speaking 7s and 10s lead moves to higher yields.

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LawsofPhysics's picture

Please.  All sovereign bond markets are dead.

Fredo Corleone's picture


Cuccinelli was outspent by $15 million over the last thirty days of the campaign. The Democrat, McAuliffe, enjoyed campaign appearances by the likes of Clinton ( "husband" ), Clinton ( "wife" ), Biden, and The One himself. The RNC pulled the majority of its financial support from the Republican candidate the first week of October, and the sole "friendly" campaign appearances for Cuccinelli by national figures were by Rubio and Ron Paul - Mr. Paul's appearance, the penultimate day of the campaign.

In addition, Cuccinelli was included as an element within the "obstructionist" House GOP amalgm by both in-state and national Democrat-sycophant media - for the simple reason that he was a Republcan.

Lastly, the conservative/"independent" candidate for governor in the Virginia election garnered 7% of the vote, siphoning off not an inconsiderable number of Republican votes in what was always considered a close race.

All this aligned for Clinton's former coatholder, and he wins by a mere 2%, with a 48% plurality.

Stick to reading entrails regarding the bond market. Political acumen, this commentator has not.

Jay Gould Esq.'s picture

Quite so. This was not the "resounding" victory which the shamelessly biased national media shall portray it as being for the Democrat Party, nor was it a "hideous repudiation" of the "Tea Party;" reduced to the lowest common denominator, money won this one, and large sums of it, for the Democrat.

NotApplicable's picture

Referring to Bloomberg as a Republicrat is a joke. So, has he opened up his presidential campaign website yet?

divide_by_zero's picture

Add to that, the Libertarian was bankrooled by Obama bundler

From the Blaze

"Campaign finance records show the Libertarian Booster PAC has made the largest independent contribution to Sarvis’ campaign, helping to pay for professional petition circulators who collected signatures necessary to get Sarvis’ name on Tuesday’s statewide ballot. Austin, Texas, software billionaire Joe Liemandt is the Libertarian Booster PAC’s major benefactor. He’s also a top bundler for President Barack Obama."

Dr. Engali's picture

So can we officially refer to Fonz as comrad now? Good luck New York. You deserve the P.O.S. DeBlowhole.

CrashisOptimistic's picture

The forces deteriorating economies and civilization in general are immune to politics.

bourbondave's picture

In what world is McAuliffe a moderate?  It seems for elites, conservatives are always "extreme" and "far right" and democrats no matter how leftist are "moderates".

On the other hand, maybe it is in relation to the current electorate.

Dewey Cheatum Howe's picture

Interestingly on Cuccinelli he should have won that race. Besides the establishment turning their back on him the Libertarian candidate that syphoned 6% of the vote was an Obama plant. Tea Party fucked up on this one. They should have done the outreach in the first place to the Libertarian Party in VA and got Cuccinelli cross endorsed since he wasn't an establishment RINO candidate. Ron Paul could have did the outreach and brokered the deal.

As I always say follow the fucking money.

"A major Democratic Party benefactor and Obama campaign bundler helped pay for professional petition circulators responsible for getting Virginia Libertarian gubernatorial candidate Robert C. Sarvis on the ballot — a move that could split conservative votes in a tight race.

Campaign finance records show the Libertarian Booster PAC has made the largest independent contribution to Sarvis’ campaign, helping to pay for professional petition circulators who collected signatures necessary to get Sarvis’ name on Tuesday’s statewide ballot.

Austin, Texas, software billionaire Joe Liemandt is the Libertarian Booster PAC’s major benefactor. He’s also a top bundler for President Barack Obama. This revelation comes as Virginia voters head to the polls Tuesday in an election where some observers say the third-party gubernatorial candidate could be a spoiler for Republican Ken Cuccinelli."


Former presidential candidate and Congressman Ron Paul, notorious for his Libertarian views and dedication to principle, campaigned for Cuccinelli in Virginia last night. When Ron Paul is campaigning for the Republican in the race, you know the Libertarian is fake.

Classic Chi-com political election rigging using subterfuge, inflitration and deception to drive wedges and division to dilute the votes.

What is more disturbing about the Tea Party types is their group think. The ones I talk to are actually just butt hurt Republican RINO types who believe in the party first and are actually appalled the idea of cross endorsement since they are afraid people will vote the Libertarian line instead of Republican on the ballot. It isn't about the candidate or libertarian ideas with these types but the party. God fucking forbid they cross endorse and find out a 10% split goes Libertarian on ballot votes while still winning the election.

If they don't do the outreach they will not win in the tight races. It is going to be the Independents and Libertarian line that will push the Tea Party candidates over the hump. Didn't anyone pay any fucking attention to the Romney vote concerning Libertarian candidates aka Gary Johnson and Independent voters. Apparently not or Cuccinelli would have been elected. It is going to take more than the Independents to break the stranglehold.

To add to that.

Tea Party favorite Ken Cuccinelli, abandoned by the Republican establishment as too "extreme" to win in Virginia, crushed Democrat Terry McAuliffe among independent voters by 9 percentage points, 47%-38%.

To hammer home the Libertarian Party line being crucial to win

Cuccinelli (R) 45.5%

Sarvis      (L)  6.6%

McAuliffe  (D) 48.8%


If Cuccinelli was cross endorsed which could have happened if Ron Paul did the outreach in the first place all they would have needed was 2.6% of that Libertarian vote to win. That would be a realistic vote expectation on a cross endorsed Tea Party candidate with Ron Paul's backing. Libertarians won't vote for RINOs and maybe not at all in some cases but Tea Party candidates properly vetted and cross endorsed they will but the Tea Party needs to get over the team think I am Republican 2 party team bullshit and realize it is about ideas and principles along with coalition building. Keep thinking you are Republicans first and you will keep losing. It is a big club and you ain't in it as far as the establishment goes. Keep thinking you are and you will keep losing elections.

Flakmeister's picture

Exit polls indicate that Sarvis voters would have favour McAuliffe 2 to 1...  So much for you theory... 

McAuliffe was also a very flawed candidate who still managed to win...

Dewey Cheatum Howe's picture

Exit polls usually are skewed, I bet they did them in urban areas that tend to lean Democrat in general. If they did the exit polling strictly in the rural areas in Virginia that Libertarian exit polling vote would have skewed the other way. They probably polled only in counties like Fairfax and Loudoun which have large population centers.

I can take small grouping data points that are not representative of the whole set and extrapolate out from there to come up with conclusions that fit the bias I am trying to present. The BLS does this all the time.

I don't know what the true breakdown should be but I still stand by my point 2.1% was doable with a cross endorsement. Once the methodologies and precincts where they did the polling are made publicly available the numbers can be unskewed so a truer breakdown can be ascertained. The more important question is which wasn't asked is would they have voted at all if there wasn't a 3rd candidate on the ballot. That changes the whole breakdown depending upon the answer that 2 to 1 might flip the other way once you filter out the non voters.

Nice try at a defense there flaky but we know how the propaganda machine works and numbers without methodologies and sources aka precincts breakdowns where they were gathered from can be interperted for skew on purpose.

Flakmeister's picture

Is this the kind of math that Tea Partiers do to make themselves feel better?


Edit: Here is a nice synopsis of what a douchebag McAuliffe is

And he still won over the Coochman...

farmboy's picture

CSFB are gathering their own muppets here,