The United States 10-year Treasury yield is expected to hit 2016 high of 2 percent if Democrat presidential candidate Hillary Clinton triumphs over Republican Trump in today’s presidential election.

In last four months, the benchmark 10-year bond yield jumped more than 50 basis points following the Federal Reserve’s December hike speculation and it is likely to continue its pace after Clinton claims the White House.

Hillary Clinton’s victory would likely be viewed by the markets as a continuation of the status quo, and the passage of event risk would likely prove supportive for the pricing of a December rate hike.

Additionally, Clinton’s victory would represent a comfortable maintenance of the status quo in Washington, a Trump win would mean more than a routine switch of parties (considering his unorthodox views with respect to the Republican establishment) but rather herald a period of unprecedented uncertainty and instability in both American domestic and foreign policy.

In particular, Trump's anti-trade stance would jeopardise trade with China and other emerging market countries. His anti-immigration position could also create labour shortages. Business confidence would take a tumble, and the new downside risks to the economy would reduce the probability that the Fed goes ahead with a December rate hike.

Latest polls have also showed that major probability for Clinton to win is higher as compared to Trump. Latest US Fox News poll puts Clinton ahead of Trump by 4 percent among likely voters in the presidential election race. Earlier, CBS News, ABC/Washington Post and NBC/WSJ poll all showed the same 4 percent gap in favour of Clinton whilst Selzer & Co poll showed a 3 percent lead for Clinton.

Also, in the latest ABC/Washington Post poll Clinton leads Trump by 47 percent to 43 percent in the US presidential election race.

Lastly, we expect if Clinton emerges victorious, the markets will be less surprised, but relief will be compounded by the simple reduction of political uncertainty. The S&P 500 should be able to reclaim its mid-October levels of 2150, while we think the USD index ought to head back towards its corresponding high of about 99.00.

The 10-year Treasury yields and the curve to eventually bear flatten as the market starts to fully price in a December hike. While yields could rise after a Clinton win, we still see strong support for 10-year Treasury around 1.95 to 2 percent, which is where we see fair value based on our fair value model.