Ever So Slightly Risky

I follow politics pretty closely, so I was watching the election returns Tuesday night. I pay attention to Five Thirty Eight because they generally have the best data and their election night coverage was good. They had a real time estimate of the odds of each party winning the house and the senate and early in the night their model appeared to be over-reacting to early returns. Nate Silver tweeted:

Well, I'm trying to do 6 things at once — we think our live election day forecast is definitely being too aggressive and are going to put it on a more conservative setting where it waits more for projections/calls instead of making inferences from partial vote counts.

— Nate Silver (@NateSilver538) November 7, 2018

The model briefly had Republicans with a 60% chance of winning the house.

Today I read this article from the Financial Times. Political betting markets also briefly had the Republicans likely to take the house. I suspect 538’s data had something to do with that.

 

This caused a brief spike in the US Debt market.

 

Per the Financial Times:

So for about an hour last night, the people who trade US debt thought that Republicans would control the White House, Senate and House for another two years. This was a surprise, and so it was the only information they were reacting to. Which means we can control for how they feel about Republican spending.

And so now we know. It’s not just inflation. It’s not just China. Markets see Republican fiscal policies as ever so slightly…

risky.