Bond Investors Set Up for Jump in Yields With Focus on Trump

US Treasuries are set to open weaker as investors look to rekindle the selloff spurred by Donald Trump’s presidential victory last week.
Ten-year Treasury note futures fell by about 11 ticks as of 3:30 p.m. New York time on Monday with cash markets closed for a US holiday, implying a yield of approximately 4.35%. That level, if sustained when markets reopen for trading in Asia’s Tuesday session, would be some five basis points higher than Friday’s close.
“Better economic data, perhaps a too-dovish Fed, and more policy details from the Trump administration could push Treasury yields higher,” wrote a team of strategists at LPL Financial in a Monday note. “It will take negative economic surprises for yields to fall meaningfully from current levels.”
Treasuries slumped on Wednesday as Trump won the presidency last week as investors amped up on bets that policies such as tax cuts and tariffs will fuel price pressures. That’s reinvigorating a focus on inflation just days after the Federal Reserve delivered a quarter-point interest-rate reduction.
Over the weekend, Minneapolis Fed President Neel Kashkari said the US economy has remained remarkably strong as the central bank progressed in beating back inflation, but the Fed was still “not all the way home.” A reading of October inflation data is scheduled for Wednesday.
“There’s a different landscape for fiscal conditions” after the election, said Janet Rilling, senior portfolio manager and the head of the Plus Fixed Income team at Allspring Global Investments. “Growth in the economy is strong. Jobs data is more muddied. Inflation is the one with most uncertainty. The Treasury market has been responding to data very efficiently.”
Traders in the swaps market expect a combined quarter-point move over the next two meetings and 60% odds of a December cut. One standout trade on Monday garnered attention in options linked to the Secured Overnight Financing Rate. The bet included a dovish hedge targeting two more quarter-point cuts for the December and January policy meetings.
To George Catrambone, head of fixed income at DWS Americas the bond market likely remains “under the influence of the election results,” even though investors “ought to wait to see what ultimately becomes stated policy.”
On Wall Street, the uncertainty is pushing strategists to hold tight to their neutral recommendations in the wake of the election. Citi, JPMorgan and Morgan Stanley strategists are all neutral on bond duration after the election and latest Fed decision.
Futures imply the US curve is likely to steepen once cash trading resumes. Volumes were thin throughout the session on Monday, with futures trading at only about 32% of the 20-day average levels up until 3:30 p.m. New York time.
In Europe, German bonds outperformed on the day, with cash yields lower across the curve as money markets anticipate a lower European Central Bank terminal rate amid doubts over German debt plans. Gilts also climbed on the day.
With assistance from Carter Johnson and Michael Mackenzie.
This article was generated from an automated news agency feed without modifications to text.