A specialist trader works in a post on the floor of the New York Stock Exchange on October 23, 2024.
Brendan McDermid | Reuters
Treasury yields soared on Wednesday as Donald Trump won the US presidential election over Vice President Kamala Harris, with a possible Republican victory in Congress also on the horizon.
Ten-year Treasury yields rose 18 basis points to 4.47%, reaching their highest level since July, as investors bet a Trump presidency would boost economic growth along with fiscal spending.
The yield on government bonds with a term of 2 years rose by 8 basis points to 4.28%, reaching the highest level since July 31. One basis point corresponds to 0.01%. Revenues and prices have an inverse relationship.
NBC News predicted that Trump would win the presidential election, driven by victories in North Carolina, Wisconsin, Pennsylvania and Georgia. NBC News also predicted that Republicans are expected to regain majority control of the U.S. Senate in 2025. The House of Representatives was still up for grabs, leaving open the possibility of a Republican victory.
The general thinking on Wall Street ahead of the election was that bond yields could see a big boom in the event of a Trump victory, and that they could rise in a Republican victory, with the party gaining control of Congress and the White House would take over. That’s because Republicans can implement tax cuts and steep rates, measures that could boost economic growth but also widen the budget deficit and reignite inflation.
“If there is a Republican sweep in the House of Representatives, the Senate and the presidency, I expect the bond market to be shaky,” Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania, said on Tuesday’s “Squawk Box” from CNBC. “I expect they’ll be concerned that Trump will pass all these tax cuts, and I think bond yields will rise.”
Neither Trump nor Harris actually promised fiscal discipline during the campaign, raising concerns that investors will demand higher returns in exchange for holding government bonds as the government is forced to issue more and more debt to finance its rising spending.
“Bonds are selling off en masse across the yield curve as Trump’s trade is reinstated,” wrote Byron Anderson, head of fixed income at Laffer Tengler Investments. “We see markets expecting a Trump victory and a real possibility of a Republican victory.”
According to Stephanie Roth, chief economist at Wolfe Research, interest rates can be expected to approach 4.5% if Trump wins.
Ten-year government bond yields rose 50 basis points in October, marking the biggest monthly increase since September 2022.
The Federal Reserve will make its next interest rate decision on Thursday and is widely expected to cut rates by a quarter of a percentage point.
– CNBC’s Alex Harring and Sarah Min contributed reporting.