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Bond yields have soared after Trump’s re-election, which could impact the interest rates consumers receive on loans.
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Ten-year government bond yields rose by 18 basis points, and thirty-year government bond yields saw their biggest increase since March 2020.
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Trump’s policies could increase inflation, which could impact the Federal Reserve’s interest rate strategy.
Bond yields then soar Donald Trump’s re-election This suggests that US borrowers may not get the relief they had hoped for, as Trump’s policies have the potential to complicate the Federal Reserve’s interest rate plans.
The yield on ten-year US government bonds rose 18 basis points to 4.477% on Wednesday morning, the highest level since July 1. Interest rates have risen by 76 basis points since July 1. the Fed launched its first rate cut of the cycle in mid-September.
Long-term yields also rose sharply, with the yield on 30-year US government bonds rising as much as 24 basis points, marking the biggest increase since March 2020.
Government bond yields influence the pricing of consumer and corporate bonds, and the latest price increases will put pressure on consumer borrowers who want to take out a mortgage to buy a house or a car loan to buy a car.
The average mortgage interest rate with a fixed term of 30 years – which closely reflects the interest rate on 10-year government bonds – has crept up to 7% and will likely eclipse that level if Wednesday’s rate hike continues.
That would return mortgage rates to this summer’s levels, diminishing hopes for potential homebuyers for any improvement in affordability.
The rise in bond yields is underway driven by the expectation that Trump’s policy proposals, such as broad tariffs, tax cuts, and the deportation of millions of immigrants would be inflationary, raising prices and wage growth. That would cause the Fed to change its roadmap for further rate cuts as prices and wage growth creep up again.
“The Federal Reserve may believe that if fiscal policy is eased from their previous baseline forecasts, it will need to implement tighter monetary policy, implying higher neutral rates to keep inflation at the 2% target,” he said. James Knightley. , says an economist at ING Economics.
While markets expect the Fed to go ahead with a 25 basis point rate cut at its meeting on Thursday, the likelihood of another 25 basis point rate cut in December fell from 77% on Tuesday to 66% on Wednesday, according to the FedWatch Tool from the CME. .
Economist Derek Tang of LH Meyer/Monetary Policy Analytics said the Fed could already be recalibrating monetary policy to adjust to expectations of a second Trump term.