(Bloomberg) — U.S. Treasury yields have soared — with the 30-year yield rising the most since the global flight to cash in March 2020 — as investors resumed betting that Donald Trump’s return to the White House will will stimulate inflation.
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The yield on the longest-dated U.S. Treasury bonds rose as much as 24 basis points to 4.68%, the highest level since May, and remained higher by nearly 20 basis points. Interest rates across all maturities rose at least 13 basis points at one point as traders lowered their bets on the size of Federal Reserve rate cuts in the coming year. They still expect the central bank to cut interest rates by a quarter of a point on Thursday.
An auction of 30-year Treasury bonds at 1:00 PM New York time is an additional burden on that segment of the market. Still, the interest rate movements are a vindication for those who took advantage of the so-called Trump Trade: higher rates and a steeper curve.
“The bond market is expecting stronger growth and possibly higher inflation,” said Stephen Dover, head of the Franklin Templeton Institute. “This combination could delay or even halt the Fed’s expected rate cuts.”
As investors increasingly bet that policies such as tax cuts and tariffs will fuel price pressures, the 10-year Treasury yield rose 21 basis points to 4.48%, the highest level since July, helped by a big block trade in futures. They underperformed European bonds, reflecting concerns about the impact of US tariffs on euro area export-dependent industries.
Bets on a revival in US inflation were reflected in the two-year inflation swap rate rising 20 basis points to 2.62%, the highest level since April. The price action parallels the aftermath of the 2016 election, when Trump’s victory raised inflation expectations and bonds fell.
Freya Beamish, head of macroeconomics at TS Lombard, said the biggest issue on her clients’ minds is whether the bond sell-off is just “a taste of what’s to come.”
“The question of whether Trump’s policies can generate sustained higher inflation is a question we can debate over the next five years,” Beamish said. “In short, the markets cannot fully price that story today.”
The moves also highlight concerns that Trump’s proposals will fuel the budget deficit and increase bond supply.
Wednesday’s $25 billion auction of 30-year bonds is the last of three sales of U.S. fixed-rate bonds this week. Buyers of 10-year bonds sold on Tuesday face widening losses as yields rise from the auction level of 4.347%.
