(Bloomberg) — U.S. Treasury yields rose — with their highest 30-year rise since the global flight to cash in March 2020 — as investors return to betting that Donald Trump’s return to the White House will boost inflation.
Most read from Bloomberg
The yield on longer-maturity US government bonds rose as much as 24 basis points to 4.68%, the highest level since May, and remained up about 20 basis points. Prices for all periods rose by at least 13 basis points at one point as traders reduced their bets on the scope of interest rate cuts by the Federal Reserve over the next year. They still expect the central bank to cut interest rates by a quarter point on Thursday.
The 30-year Treasury bond auction at 1 p.m. New York time constitutes an additional burden on this sector of the market. However, the yield movements are a vindication for those who doubled down on the so-called “Trump trade” – higher yields and a steeper curve.
“The bond market is anticipating stronger growth and possibly higher inflation,” said Stephen Dover, president of the Franklin Templeton Institute. “This combination could slow or even halt expected federal interest rate cuts.”
As investors increasingly bet that policies such as tax cuts and tariffs will fuel price pressures, the yield on the 10-year Treasury note rose 21 basis points to 4.48%, the highest level since July, supported by heavy trading in futures contracts. They underperformed European bonds, reflecting concern about the impact of US tariffs on export-dependent industries in the euro zone.
Bets on a return of US inflation were demonstrated by the two-year inflation swap rate rising 20 basis points to 2.62%, the highest level since April. The price action is similar to what happened following the 2016 election, when Trump’s victory sent inflation expectations higher and bonds lower.
Freya Beamish, head of macro at TS Lombard, said the biggest issue on her clients’ minds was whether the bond sell-off was just a “taste of things to come”.
“The question of whether Trump’s policies can generate consistently higher inflation is an issue we can debate over the next five years,” Beamish said. “In short, markets cannot fully price this story today.”
The moves also point to concerns that Trump’s proposals will fuel the budget deficit and spur an increase in the supply of bonds.
Wednesday’s $25 billion auction of 30-year bonds is the last of three sales of U.S. fixed-rate debt this week. Buyers of the 10-year bonds sold Tuesday face mounting losses as the yield rises from the auction level of 4.347%.
Comments are closed, but trackbacks and pingbacks are open.