The bond market reacted strongly to Donald Trump’s reelection, with yields surging significantly. The 10-year U.S. Treasury yield increased by 18 basis points, reaching 4.477%, its highest since July 1, and 76 basis points higher than before the Federal Reserve’s rate cut in September. Longer-term yields also spiked, with the 30-year yield jumping by 24 basis points. This surge indicates that consumer borrowers might face higher rates for mortgages and auto loans as bond yields influence the pricing of debt.
The bond yield increases reflect expectations that Trump’s policies, which include tariffs, tax cuts, and immigration policies, will drive inflation. This could prompt the Federal Reserve to adjust its plans for interest rate cuts. Mortgage rates, which follow the 10-year Treasury yield closely, are expected to rise above 7%, dimming hopes for homebuyers seeking affordability in the housing market. Economists suggest that the Federal Reserve will likely tighten monetary policy to combat inflation if fiscal policies under Trump lead to higher inflationary pressure.
While there is still an expectation for the Federal Reserve to reduce rates by 25 basis points in its upcoming meeting, the chances of further cuts later in the year have decreased. Economic analysts believe the Fed may slow down its rate cuts, giving them more time to observe the economic landscape under a second Trump term. The potential nomination of a new Federal Reserve chair by Trump could also lead to a shift in the Fed’s approach to interest rates, especially if a nominee supports more accommodative policies.
