Bond market re-focus on US elections throws wrench into 2024 rally hopes
Business
Bond market re-focus on US elections throws wrench into 2024 rally hopes
NEW YORK (Reuters) - A recalibration of how the U.S. presidential election plays out is causing bond investors to bet yields stay higher for longer as November approaches.
Yields have risen sharply after President Joe Biden's stumbling performance against Republican rival Donald Trump in the first presidential debate last month, which increased speculation about a second Trump win when voters go to the polls on Nov. 5. The benchmark 10-year yield rose about six points to 4.34% following the debate.
Some investors are betting on higher inflation under Trump because of trade and economic policies such as higher tariffs on imports, and profligate government spending along with lower tax revenues, which would boost fiscal deficits and U.S. debt levels. Trump's team has said his pro-growth policies would bring down interest rates and shrink deficits.
Republican National Committee spokesperson Anna Kelly said in a statement that the market reaction to Trump's "debate victory reflected the anticipation of the strong-growth, low-inflation reality that President Trump will deliver once again."
Some have said a reckoning on U.S. debt will eventually catch up with the country and market.
"The lens (is) really starting to turn to the fiscal and the debt dynamics," said Mary-Therese Barton, fixed income chief investment officer at Pictet Asset Management. "(The) rate-cutting cycle is perhaps shallower than expected with a focus more on the longer end."
Those concerns around widening fiscal deficits and the rising government debt burden threaten to limit any nascent rally in bonds, expected as the Federal Reserve gets closer to cutting rates after an aggressive hiking cycle to tame inflation.
