US Treasury yields opened the week on a weaker note as investors looked to rekindle the selloff triggered by Donald Trump’s presidential victory. The yield on the benchmark 10-year Treasury bond increased by as much as three basis points, reaching 4.34% during Asian trading on Tuesday, following a holiday break in the US on Monday when cash markets were closed.
LPL Financial strategists noted in a report that stronger economic data, a possibly too-accommodative Federal Reserve, and more detailed policy announcements from the Trump administration could push Treasury yields higher. “It will take a series of negative economic surprises for yields to fall significantly from their current levels,” the strategists wrote.
The bond market took a hit last Wednesday after Trump’s presidential win, as investors raised their bets that his proposed policies—such as tax cuts and tariffs—could ignite inflationary pressures. This shift in focus on inflation came just days after the Federal Reserve enacted a quarter-point rate cut.
Over the weekend, Minneapolis Fed President Neel Kashkari stated that while the US economy had remained resilient, there was still more work to be done to tame inflation. He acknowledged that the central bank was not “all the way home” in its battle against rising prices. Markets are bracing for the release of October’s inflation data on Wednesday, which could further impact market sentiment.
Janet Rilling, Senior Portfolio Manager and Head of the Plus Fixed Income Team at Allspring Global Investments, emphasized that the economic landscape had changed following the election. “Growth is strong, but job data remains mixed. Inflation continues to present the greatest uncertainty, and the Treasury market is responding efficiently to incoming data,” she remarked.
In the swaps market, traders are anticipating a quarter-point rate cut in the next two Federal Reserve meetings, with a 60% probability of a reduction in December. On Monday, a notable options trade targeting the Secured Overnight Financing Rate caught attention, with a bet that the Fed could make two more quarter-point cuts by December and January.
Despite the election’s impact on market expectations, George Catrambone, Head of Fixed Income at DWS Americas, cautioned that it is too early to make definitive calls. He argued that bond market behavior will likely remain shaped by election outcomes, though investors should wait for more concrete policy details before adjusting their positions.
On Wall Street, the uncertainty prompted many strategists to maintain neutral positions on bond duration, including experts from Citi, JPMorgan, and Morgan Stanley, all of whom have recommended a cautious approach in the wake of the election and the latest Fed decision.
Economist Nouriel Roubini warned that if Trump were to push through large-scale spending plans, such as making his 2017 tax cuts permanent, it could trigger the return of “bond vigilantes,” leading to swift market discipline. Roubini discussed this potential on Bloomberg Television, noting that the bond market would likely react quickly if such policies were enacted.
Trading volumes for Treasury futures were subdued on Monday, with activity at just 32% of the 20-day average until 3:30 p.m. New York time.
Meanwhile, in Europe, German government bonds outperformed their US counterparts, with cash yields lower across the curve as money markets adjusted expectations for a lower European Central Bank terminal rate. Market participants also expressed skepticism about the future of German debt plans, and UK gilts saw an uptick as well.
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