As the inauguration of U.S. President-elect Donald Trump approaches, U.S. bond yields have continued to rise, drawing widespread market attention. The 30-year U.S. Treasury yield reached 4.919% on Tuesday, marking a 14-month high and edging close to the 5% threshold. Meanwhile, the 10-year U.S. Treasury yield climbed to 4.695%, its highest level since April of last year.
Inflation Concerns and Policy Expectations Raise Yields
Investors are worried about Trump's proposed tariff policies and their potential inflationary effects, which have driven U.S. bond yields up in the past month. Both the 10-year and 30-year U.S. Treasury yields have risen approximately 50 basis points during this period. The market believes these tariff policies could escalate import costs, further intensifying inflation pressures.
Additionally, Trump's plans for tax cuts, the abolition of tipping, and social security payroll taxes may significantly increase government borrowing. According to institutional estimates, these proposals could add $7.8 trillion to the U.S. debt over the next decade.
BlackRock’s Chief Investment and Portfolio Strategist for the Americas, Gargi Chaudhuri, noted: “The market needs certainty on fiscal policy, but the unknown scale of U.S. debt issuance keeps buyers cautious.”
Economic Data and Bond Supply Pressure Intensify Market Strains
The latest ISM services PMI showed U.S. service activity in December grew beyond expectations, further diminishing the Federal Reserve's chances of cutting rates and exacerbating market concerns over inflation. This data has exerted additional pressure on the bond market, driving yields even higher.
Meanwhile, the U.S. Treasury advanced its bond auction to commemorate former President Jimmy Carter, increasing supply in the early part of this week and adding selling pressure to the bond market. According to BMO Capital Markets analyst Ian Lyngen, this supply change has created a "somewhat heavy" trading atmosphere.
Wall Street Expects Yields to Top 5%
Several Wall Street analysts predict there is still room for U.S. bond yields to rise. Peter Tchir, Head of Macro Strategy at Academy Securities, has raised the target for the 10-year U.S. Treasury yield to 4.75%. Jim Bianco, President of Bianco Research, forecasts the average 10-year yield could reach 5.23%. Mizuho Securities’ U.S. Chief Economist Steven Ricchiuto also believes yields could approach 5%.
Despite the rising yields, some investors still see market opportunities. According to the latest JPMorgan survey, long positions in the 10-year U.S. Treasury contracts have risen to their highest level in over a year, although short positions also saw growth in the past week.
Looking Ahead: Upward Pressure on Yields Remains
As Trump’s inauguration looms, the uncertainty surrounding the new government's fiscal policies continues to impact the bond market. Combined inflation concerns and supply pressures may lead U.S. bond yields to continue climbing and possibly breach the crucial 5% psychological barrier. Investors should heed emerging policy details and their further effects on the bond market.
