Bond Market Volatility Has Only Just Begun
Long-term yields have been steadily rising over the past few weeks, even as the Federal Reserve cut short-term rates in September and is likely to do so again on Thursday…and in December. The reason is simple. Investors are betting that no matter who wins the presidential election, either former President Donald Trump or Vice President Kamala Harris will push for more fiscal stimulus.
John Flahive, head of fixed income at BNY Wealth, told Barron’s that the 10-year Treasury yield, now hovering around 4.28%, could creep a little higher in the immediate aftermath of the election. But Flahive noted that solid demand for Treasuries in an auction Tuesday afternoon helped keep a lid on rates. Yields retreated from higher levels earlier in the session. The 10-year peaked at 4.37% in late morning trading.
There’s another reason why long-term rates may be close to finally peaking. Flahive pointed out that the 10-year yield has already soared from about 3.6% in mid-September, a substantial move. Bond investors have already appeared to be pricing in the potential for stickier inflation if there is more stimulus. And fears of gigantic stimulus plans could turn out to be for naught. That’s because recent data about jobs and retail sales suggest that the economy is still in decent shape…which means Congress and the new president may not have to spend as aggressively.
