When Donald Trump emerged victorious in the presidential election on Wednesday, stock prices soared.
While the stock market rose, the bond market fell.
Stocks soared to record highs on Wednesday in the wake of news of Trump’s triumph, marking an end to the uncertainty of the election cycle and perhaps a vote of confidence in his plans for the national economy, some economists said.
On the same day, the yield on 10-year government bonds rose to 4.479%, a four-month high. Higher bond yields mean a declining bond market: bond prices fall as yields rise.
While stock traders rejoiced, bond traders expressed dismay over Trump’s budget plans.
Trump campaigned on the promise of keeping taxes low. He also proposed sweeping tariffs on imported goods.
Economists warn that Trump’s plans to maintain and extend tax cuts will widen the federal budget deficit, which stands at $1.8 trillion. Tariffs, meanwhile, could reignite inflation, and the Federal Reserve has been working to cool it.
For bond investors, these concerns translate into rising interest rates. The yield is the interest, the amount that investors expect to receive in exchange for lending money: in this case to the federal government.
In the current economic cycle, bond investors “could see a risk that holding U.S. debt will increase without a plan to cut spending. And there isn’t,” said Jonathan Lee, senior portfolio manager at US Bank.
The 10-year government bond is considered a benchmark in the bond market. Yields on these bonds “began rising weeks ago as investors anticipated a Trump victory,” The New York Times reported, “and on Wednesday, 10-year Treasury yields rose as much as 0.2 percentage points, a huge step toward of the interest. that market.”
It was an ironic moment for the rise in bond yields. Bond yields generally move in the same direction as other interest rates.
But the Federal Reserve cut rates on Thursday, cutting the fed funds rate by a quarter point. The rate cut was widely predicted and, in any case, the Fed’s interest rate decisions are more important for the short-term bond market.
Long-term bond yields are rising as “many investors expect the federal government to continue high deficit spending under Trump,” according to personal finance site Bankrate.
Many forecasters expect Trump and a Republican-led Congress to renew the Tax Cuts and Jobs Act of 2017, which cut tax rates across the board and fueled the federal budget deficit during Trump’s first term.
