The price of US treasury bond bonds fell sharply for the second day in a row on Monday, pushing multiple term yields to their highest level in several weeks. Many traders have expressed that this is a sustained impact caused by the increasing probability of Trump winning in recent trading days. Bond yields and price rebounds.
Market data shows that the massive selling of long-term bonds has driven the overall yield of US treasury bond bonds higher in the past two days. The 10-year US Treasury bond yield, known as the "anchor of global asset pricing," has surged by over 15 basis points in the past two trading days, closing at approximately 4.468% on Monday. The 30-year US Treasury yield also rose more than 5 basis points on Monday to 4.615%, reaching its highest level since June 3rd.
It is not difficult to see from the following market chart that the recent two day intraday increase in the yield of 10-year US Treasury bonds is almost entirely related to the changes in the election situation in the United States.
Republican presidential candidate Trump has undoubtedly achieved two "big victories" in the past few trading days:
One of them was that in the first debate of last week's presidential election, he clearly overthrew Biden, who was "old, weak, and articulate"; The second is a great victory in the trial. The US Supreme Court ruled on Monday that the former US president has significant immunity from prosecution for actions during his tenure, which may hinder efforts to prosecute Trump for allegedly attempting to overturn the 2020 election.
Last weekend's latest public opinion poll showed that due to Biden's poor performance in last week's debate, voters have become increasingly skeptical of his leadership abilities. According to polls conducted by CBS News and YouGov on Friday and Saturday after the debate, 28% of registered voters believe that Biden should run for president, while 72% of voters believe that he should not run for president.
These latest election changes undoubtedly quickly amplified the possibility of Trump winning the November presidential election and ultimately returning to the White House.
As a result, many interest rate strategists on Wall Street have urged clients to start preparing for the resurgence of inflation and rising long-term bond yields. Big banks such as Morgan Stanley and Barclays are planning ahead for Trump's ultimate victory in the US election.
Morgan Stanley strategists, including Matthew Hornbach and Guneet Dingra, stated in a report over the weekend that "now is the time" to bet that long-term interest rates will rise relative to short-term rates. The institution pointed out that since last week's first debate, Trump's rise in public opinion polls means investors will have to consider the risk of a Republican victory, which could lead to fiscal expansion and put upward pressure on long-term bond yields.
Stefan Dannibale, head of interest rate trading and sales at Odeon Capital Group, said, "The market is gradually digesting the possibility of Trump's victory, and it is expected that interest rate fluctuations will lean towards higher yields."
In addition, Barclays also believes that the best response to the increasing likelihood of Trump's victory is to hedge against inflation risks. The bank's strategists Michael Pond and Jonathan Hill wrote last Friday that the clearest narrative is betting that the performance of five-year inflation protected bonds (TIPS) will outperform benchmark five-year US Treasury bonds.
Macquarie Global Foreign Exchange and Interest Rate Strategist Thierry Wizman pointed out that "US President Biden's performance in the first debate of the election last week was widely criticized, which may have led investors to believe that former President Trump has a greater chance of winning the November 5th election, thereby putting further pressure on US bonds. Due to various reasons such as fiscal policy, tariff policy, and immigration policy, we do believe that the Trump administration will be more likely to trigger inflation than the Biden administration in 2025-2028.".
The sell-off of long-term bonds indicates that today's trend is not related to the Federal Reserve's concerns about fighting inflation, but rather reflects people's concerns about the rising budget deficit after Trump returns to power. Lawrence Gillum, Chief Fixed Income Strategist at LPL Financial, said that as Trump's chances of winning the election increase, there has been some election anxiety in the market.
In fact, not only have US bond yields recently seen a significant increase, but the US dollar index also saw another significant increase on Monday. The Bloomberg US dollar spot index rose 0.2% on Monday after reaching its highest level since November last week.
Many foreign exchange traders believe that Trump's trade protection policy may drive the US dollar stronger. Jane Foley, the head of monetary strategy at Rabobank in London, said that if Trump pushes forward some of his huge tariffs, it will trigger inflation. This may mean that the Federal Reserve's interest rate cutting cycle will soon come to an end, which will provide support for the US dollar.
Looking ahead to the day, investors need to keep an eye on the further development of the US political arena, as well as the annual Central Bank Forum held by the European Central Bank in Sintra, Portugal. Tonight, Beijing time, Federal Reserve Chairman Powell, European Central Bank President Lagarde, and Brazilian Central Bank President Neto will deliver speeches at the forum event, which may reveal more clues about the direction of monetary policy.