The 10-year Treasury yield increases as the U.S. election attracts attention.
Early Tuesday evening, treasury yields increased as investors anticipated the outcome of the close presidential race between Vice President Kamala Harris and ex-President Donald Trump.
The 10-year Treasury yield increased by 5 basis points to 4.34%, while the 2-year Treasury yield rose by 4 basis points to 4.24%. A basis point is equivalent to 0.01%. Yields and prices have an inverse relationship.
If Trump wins the election, bond yields could experience a significant increase, and they could rise even more if the Republicans sweep both houses of Congress and the presidency. This is because the party may introduce tax cuts and tariffs, which could widen the fiscal deficit and rekindle inflation.
"If the Republicans win control of the House, Senate, and presidency, I anticipate the bond market to be unstable, according to finance professor Jeremy Siegel of the Wharton School at the University of Pennsylvania, who made this prediction on CNBC's "Squawk Box" on Tuesday. He believes that the bond market will be concerned about Trump's tax cuts and expects bond yields to rise as a result."
On the campaign trail, neither Trump nor Harris promised fiscal discipline, which has raised concerns among investors that they may demand higher yields on Treasuries as the government continues to issue more debt to fund its growing spending.
According to Stephanie Roth, chief economist at Wolfe Research, the yield can be expected to approach 4.5% in the event of a Trump win, or fall toward 4% under a Harris victory.
A Harris administration with a divided Congress may prompt bond yields to retreat.
According to Siegel, a split Congress is likely to be the preferred outcome for the markets, regardless of who wins the presidency, as it would prevent either candidate from implementing their full plan.
In October, the 10-year Treasury yield experienced a significant increase of 50 basis points, which was the largest monthly jump since September 2022.
The Federal Reserve is predicted to reduce interest rates by a quarter point on Thursday.
Markets
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