October 23, 2024 Professional traders working in post on the floor of the New York Stock Exchange.
Brendan McDiarmid | Reuters
U.S. Treasury yields rose in overnight trading as investors weighed the early results of the close presidential race between Vice President Kamala Harris and former President Donald Trump.
The 10-year Treasury yield rose 14 basis points to 4.431%, its highest level since July 2. The two-year Treasury yield rose 8 basis points to 4.285%, its highest level since July 31. Points are equivalent to 0.01%. Yield and price have an inverse relationship.
Traders speculated that early gains favored the former president. NBC News predicted Mr. Trump won important victories in North Carolina and Georgia, but other battleground states such as Pennsylvania were still too close to call. NBC News also predicted that Republicans expect to regain majority control of the US Senate in 2025.
The prevailing thinking on Wall Street before the election was that a Trump victory would cause bond yields to rise significantly, and a Republican landslide that would put Republicans in control of Congress and the White House could cause yields to spike. It was. That’s because Republicans could introduce tax cuts or high tariffs, widening the budget deficit and reigniting inflation.
“If Republicans win the House, the Senate and the president, it’s going to destabilize the bond market,” Jeremy Siegel, a finance professor at the Wharton School at the University of Pennsylvania, said on CNBC’s “Squawk Box” on Tuesday. “I expect they’re concerned that President Trump is going to do all these tax cuts, and I think bond yields will rise.”
Neither Mr. Trump nor Ms. Harris actually promised fiscal discipline on the campaign trail, and as the government increasingly has to issue bonds to cover ballooning spending, investors are willing to hold U.S. Treasuries at higher prices in exchange for holding them. There are growing concerns that it will demand yield.
“Bonds are selling massively across the yield curve as President Trump’s trades reapply,” said Byron Anderson, head of fixed income at Laffer Tengler Investments. “We see markets expecting a Trump victory and a realistic possibility of a Republican landslide victory.”
Yields are expected to approach 4.5% if Trump wins, but fall toward 4% if Harris wins, said Stephanie Ross, chief economist at Wolf Research.
A Harris administration with a divided Congress could push bond yields lower.
“I think the market favorite is probably a divided Congress no matter who wins the presidency, so neither candidate will be able to push through a complete plan,” Siegel said.
The benchmark 10-year Treasury yield rose 50 basis points (bp) in October, the biggest monthly increase since September 2022.
The Fed is scheduled to make its next decision on interest rates on Thursday, and is widely expected to cut rates by a quarter of a percentage point.
“Investors clearly think President Trump is going to get away with this,” said Tim Urbanowitz, head of research and investment strategy at Innovators ETF. “If these trends continue and President Trump holds out, we’re going to see interest rates rise quite significantly tomorrow.”
—CNBC’s Alex Harring and Sarah Min contributed reporting.
