Donald Trump’s comeback victory sent stock markets soaring, but also moved investors to the market for US government debt, driving up the highest yields in months, as traders kept an eye on the self-described “King of Debt” and his agenda of tax cuts and tariffs, according to reports.
The benchmark 10-year Treasury rose by almost a quarter point on Wednesday to hit 4.48% at one point, its highest since July, Bloomberg reported.
While some traders were buoyed by Trump’s win and how his administration would be good for business, investors in the $28 trillion market for government debt looked at his promises of tax cuts and tariffs that are expected to swell the national debt and stoke inflation, the report said.
“It’s a new day in America and a new day in the bond market,” Ed Yardeni, a veteran strategist, told Bloomberg.
“The fact that Trump won with so much support gives him a tremendous amount of power not only here but on a global basis.” he said. “The bond market is rightly concerned about fiscal policy continuing to be stimulative with deficits already very wide.”
The nonpartisan Congressional Budget Office in June projected the current $1.8 trillion US deficit will balloon even further over the next 10 years.
The Committee for a Responsible Budget last month estimated that Trump’s economic plans would increase the debt by $7.75 trillion over the next decade.
“Fiscal policy is more important to us as investors today, because of the size of the deficit and the magnitude of the US debt,” said Mark Dowding, chief investment officer at RBC BlueBay Asset Management, Bloomberg reported.
With tariffs increasing inflation, the Federal Reserve may hold off on cutting interest rates.
“Trump keeps openly telling people that he will increase tariffs not just on China but with every trade partner,” Andrzej Skiba, head of BlueBay U.S. Fixed Income at RBC Global Asset Management, the Associated Press reported.
“We’re talking 10% tariffs across all global partners. This is a big deal because this could add 1% to inflation. If you add 1% to next year’s inflation numbers, we should say bye to rate cuts,” Skiba said.
