US Treasuries fell and a gauge of bond volatility rose to the highest in a year as traders counted down to the outcome of a presidential election that remains too close to call.

The yield on 10-year Treasuries rose as much as five basis points to 4.33%, nearing an over three-month high, with strategists and investors warning of outsized market swings on the results of the vote. Adding to the upward pressure on yields, the supply of 10-year notes is set to increase via a $42 billion auction Tuesday. A sale of three-year notes on Monday drew tepid demand.

The ICE BofA MOVE Index, a measure of expected fluctuations in yields, reached the highest level since October 2023 on Monday. Early Tuesday trading in options on interest-rate swaps suggested the outlook for volatility will stay high. And interest-rate strategists at Citigroup Inc. said options on Treasury futures were priced for a 22 basis-point move in 10-year yields by Friday, the highest election week premium since 2012.

“It’s going to be a very volatile 48 hours for the bond market,” said Tom di Galoma, head of fixed income at Curvature Securities. “We could see a 20 basis-points swing in 10 year note yields, if for example early indications tonight show the swings states are going to Trump and then the next thing you know it looks like Harris is winning more of them.”

The US presidential race is deadlocked, with polls showing Americans narrowly split between Donald Trump and Kamala Harris. That sets the stage for market volatility whoever wins, especially if the elected president’s party also takes both houses of Congress.

The Bloomberg Dollar Spot Index edged slightly lower after sliding 0.42% on Monday as investors re-thought some wagers in the US election. Currency volatility also jumped, taking the cost of hedging the euro against the greenback to the highest in more than four years.

For weeks, betting markets favored a Trump victory and traders positioned for his low-tax and high-tariff policies to fuel growth and inflation. The so-called Trump trade boosted the dollar to the strongest level in almost four months and brought the 10-year Treasury yield to 4.38% last week from about 3.6% in mid-September.

But markets scaled back those wagers after a weekend poll cast doubt on Trump’s potential victory. A Des Moines Register/Mediacom Iowa poll showed Harris with a three percentage-point lead in the state Trump previously won twice by comfortable margins.

“I think the risks to the 10-year yield are skewed to the downside” even if Trump wins and Republicans gain control of both houses of Congress “as you could see a ‘buy the rumor, sell the news’ type of dynamic,” said Zachary Griffiths, head of US investment grade and macro strategy at CreditSights. That’s likely to be the case “as long as the Federal Reserve remains committed to normalizing policy.”

The Fed’s next policy meeting concludes Thursday, and swaps traders are pricing in an over 90% probability the central bank reduces rates by a quarter of a percentage point.

Options traders are also preparing for wild swings in the euro. The currency’s overnight implied volatility — the cost of buying protection against upcoming moves — surged on Tuesday and is headed for its biggest daily jump since 2008.

“Harris is the status-quo outcome for policy but not necessarily for markets,” said Meera Chandan, co-head of global FX strategy at JPMorgan Chase & Co. in a Bloomberg TV interview. “If she becomes President you take out a major tail risk on tariffs for markets.”

Chandan is working with a wide range of currency forecasts depending on the outcome of the vote. If Harris wins, she said the euro could rise to as high as $1.15, while if there’s a Republican sweep the currency could slide to parity with the dollar.

JPMorgan’s Chandan said commodity currencies like the Brazilian real and the Colombian peso could come under pressure on a Trump win. That outcome could also hurt the yuan, though stimulus from China’s government could offset the move.

A lot also depends on how soon the election is decided. A close call, or a situation that requires recounts could drag out the process, prolonging a period of uncertainty in markets. BlackRock Investment Institute recently said the risk of a disputed victory is underpriced.

“With an exceptionally close US election upon us, the outcome is likely to deliver a binary impact on currency markets,” said Chris Turner, head of FX strategy at ING. “Only a red sweep outcome can probably add to the dollar’s upside.”

This article was provided by Bloomberg News.