Trump’s Inauguration Fuels a Sharp Jump in Treasury Yields, Pushing 10-Year Bonds to 4.7%

As Donald Trump’s presidential inauguration approaches, U.S. treasury yields, which have been steadily rising recently, show an even greater increase.

Options that expect the 10-year Treasury yield to hit 5% are trading on the market. Monthly Treasury auction yields have surged to their highest levels since 2007.

Bloomberg reported on Wednesday that the yield on 10-year Treasury in the U.S. market has climbed by about 0.5% over the past month, approaching 4.7%. This has been the highest level in eight months since the end of April last year.

This week, the upward pressure on yields is intensified due to a surge in corporate bond issuance and a scheduled $119 billion Treasury auction. Furthermore, government borrowing is expected to increase once Trump takes office on January 20.

Reflecting this sentiment, options trading at the Chicago Mercantile Exchange (CME) on January 7 indicated that 10-year Treasury yields could reach 5% by the end of next month, a level not seen since October 2023.

Future projections point to even higher yields.

Padhraic Garvey, ING’s global head of debt and rates strategy, forecasted that 10-year U.S. Treasury yields could climb to around 5.5% by year-end.

Arif Husain of T. Rowe Price predicted that yields could potentially rise as high as 6%.

The prospect that inflation will rise again and the fiscal deficit will accelerate after Trump’s inauguration drives Treasury yields higher.

Gargi Chaudhuri, BlackRock’s Chief Investment and Portfolio Strategist for the Americas, explained that the market requires confidence in fiscal policy, which they anticipate will be clearer once Trump takes office. She noted that current uncertainty regarding the volume of Treasury issuance is causing investors to hesitate.

Employment and service indicators announced on Tuesday also showed strong performance, lowering expectations for additional Federal Reserve interest rate cuts in the latter half of this year.

This put upward pressure on treasury yields, and the U.S. government’s auction of $39 billion worth of 10-year treasury bonds was sold at 4.68%. It is the highest level in 18 years since 2007.

Tracy Chen, portfolio manager on Brandywine’s Global Fixed Income team, interpreted the employment and service indicators as confirmation that the U.S. economy remains robust and that interest rates are not overly restrictive.

Some investors believe the interest rate trend may shift as the new year begins.

A recent JPMorgan Chase client survey revealed that while short positions anticipating falling bond prices (rising yields) increased over the past week, long positions anticipating rising bond prices also surged to their highest level in over a year.