United States: Pre-election tail risks – Danske Bank

Danske Bank has flagged pre-election tail risks in the United States, signaling that the upcoming vote carries the potential for outsized market moves beyond the base-case scenario. The transmission channel runs primarily through risk appetite and policy expectations: a contested or highly uncertain election outcome can widen risk premia, lift implied volatility, and shift the market's pricing of future fiscal and trade policy, which in turn feeds into Treasury yields, the dollar, and equity sector rotation. Assets most exposed include US Treasuries and the dollar, where repricing of deficit and tariff expectations would transmit into rates and FX, as well as cyclical equities and emerging-market currencies sensitive to trade policy shifts. For the bank itself, Danske Bank's commentary is most relevant to its own currency and rates trading desks and to clients' hedging demand, since heightened event risk typically increases hedging flows and FX volatility. Traders should watch the next US inflation print and Treasury auction results in the run-up to the election, as these will indicate whether the market is already pricing a policy-driven term premium.

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