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Bond yields surged after Trump’s reelection, which could impact the speed consumer borrowers get on loans.
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The ten-year Treasury yield rose 18 basis points, and the 30-year bond yield saw its biggest jump since March 2020.
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Trump’s policies could increase inflation, impacting the Federal Reserve’s rate of interest strategy.
Bond yields are soaring after Donald Trump’s reelection, suggesting that US borrowers may not get the relief they have been hoping for as Trump’s policies have the potential to complicate the Federal Reserve’s rate of interest plans.
The ten-year US Treasury yield surged 18 basis points on Wednesday morning to 4.477%, representing the best level since July 1. It’s surged 76 basis points since the Fed launched its first rate of interest cut of the cycle in mid-September.
Longer-term yields also spiked, with the 30-year US Treasury yield jumping as much as 24 basis points for its biggest move higher since March 2020.
Treasury yields influence the pricing of consumer and company debt, and the newest moves higher will put pressure on consumer borrowers who wish to take out a mortgage to purchase a house or an auto loan to purchase a automobile.
The typical 30-year fixed mortgage rate — which closely tracks the 10-year Treasury yield — has been creeping up toward 7% and is prone to eclipse that level if Wednesday’s yield surge holds.
That will send mortgage rates back to the degrees they were at this summer, dimming hopes for potential home buyers to see some improvement in affordability.
The surge in bond yields is being driven by the expectation that Trump’s policy proposals, like broad tariffs, tax cuts, and the deportation of hundreds of thousands of immigrants, could be inflationary, driving up prices and wage growth. That will cause the Fed to alter its road map for further rate of interest cuts as prices and wage growth once more creep up.
“The Federal Reserve may take the view that if fiscal policy goes to be loosened relative to their previous baseline forecast then it must run monetary policy tighter, implying a better neutral rate of interest to maintain inflation at its 2% goal,” James Knightley, an economist at ING Economics, said.
While markets expect the Fed to proceed with a 25 basis point rate of interest cut at its meeting on Thursday, the possibilities of one other 25 basis point rate cut in December dropped to 66% on Wednesday from 77% on Tuesday, based on the CME’s FedWatch Tool.
Economist Derek Tang of LH Meyer/Monetary Policy Analytics said the Fed could already be recalibrating monetary policy to adapt to the expectations of a second Trump term.