Market Uncertainty: Treasury Yields Rise Ahead of Presidential Election
As the highly anticipated presidential election between Vice President Kamala Harris and former President Donald Trump reaches its climax, investors are bracing themselves for potential market volatility. In early trading on Tuesday, Treasury yields surged, with the 10-year yield increasing by 7 basis points to 4.6% and the 2-year yield rising by 6 basis points to 4.27%.
What a Trump Win Could Mean for Bond Yields
A Trump victory could lead to a significant spike in bond yields, potentially exceeding 4.5%, according to experts. This is because Republicans may introduce tax cuts and steep tariffs, which could widen the fiscal deficit and reignite inflation. “A Republican sweep would likely cause bond yields to rise,” said Jeremy Siegel, finance professor at the Wharton School of the University of Pennsylvania. “Investors would worry about Trump’s tax cuts and the resulting increase in debt.”
The Impact of a Harris Victory
On the other hand, a Harris win could lead to a decrease in bond yields, potentially falling towards 4%. A divided Congress, regardless of who wins the presidency, may prompt bond yields to retreat. “A split Congress would likely lead to a more moderate approach, with neither candidate able to push through their full plan,” Siegel noted.
Federal Reserve Decision Looms
As the election results unfold, investors are also awaiting the Federal Reserve’s decision on interest rates, scheduled for Thursday. The central bank is widely expected to cut rates by a quarter point, which could further impact bond yields.
Market Volatility Ahead
The benchmark 10-year Treasury yield surged 50 basis points in October, marking the largest monthly increase since September 2022. As the election outcome becomes clear, investors can expect continued market volatility. With neither candidate promising fiscal discipline, worries about the government’s ballooning debt and potential inflationary pressures are likely to persist.
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