Investing.com reported that U.S. Treasury yields rose after the recent debate between President Joe Biden and Donald Trump. Analysts at Yardeni Research believe this increase indicates that the bond market is predicting a victory for Trump in the upcoming presidential election in November.
The benchmark yield hit 4.48%, its highest level since May 31, after staying around 4.29% before the debate. Typically, yields move in the opposite direction of prices.
Despite the Federal Reserve’s preferred inflation metric, the personal consumption expenditures price index, showing a decrease in inflation, the yield still rose. This decrease was seen as a positive sign that the Fed may lower interest rates later this year.
Analysts suggest that the bond market’s reaction is due to the possibility of Trump serving a second term. They believe his return could result in stronger economic growth and higher inflation. If Trump decides to extend the 2017 tax cuts that are set to expire next year, the Treasury Department may need to borrow more money, leading to excess supply compared to demand at current rates.
The analysts predict that the increase in yields will be driven by the long end of the yield curve, indicating a shift in long-term economic forecasts while short-term outlook for Federal Reserve interest rates remains relatively unchanged.