Bonds

Treasury yields fell sharply and the dollar weakened as investors pared bets on Republican Donald Trump prevailing in Tuesday's U.S. election.

Wall Street banks are expected to capitalize on ultra-low credit spreads and strong demand from investors after they report quarterly results.

After persisting for as long as two years in the U.S., the so-called inversion in yield curves — an unusual situation where rates on short-term debt exceed those of their longer-term counterparts — is unwinding in many parts of the world. 

Investors began pulling funds rapidly after it disclosed last month the departure of Chief Investment Officer Ken Leech amid Justice Department and Securities and Exchange Commission probes into its trading practices.

In trading ahead of the debate, Treasuries rallied as oil tumbled and after U.S. bank regulators released revised details on proposed bank-capital rule changes.

Treasuries have returned 1.7% this month through Aug. 28, on pace for a fourth straight monthly gain, according to the Bloomberg US Treasury Total Return Index.

Economists are also forecasting faster and deeper cuts to borrowing costs over the next year, and see the central bank reducing the policy rate from the current 4.5% to 3% by next July.

The Federal Reserve Chair's words were enough to send Treasury yields and the dollar lower and stocks higher on Friday as investors perceived a green light to take on risk. 

Wall Street strategists are recommending taking advantage of declines in market-based gauges of future inflation to build up protection on the cheap.

As Treasuries advance for a third-straight month, investors are fully pricing in at least two quarter-point rate reductions this year, slightly more than what policymakers have telegraphed.