In 2025, the person in the White House, whether it’s President Biden, former President Trump, or someone else, may have to deal with bond vigilantes. These traders use the bond market to protest the government’s spending or lack of action on the deficit. They can sell their bonds, causing interest rates to rise and making it more expensive for the government to borrow money.
The US deficit is increasing, so whoever wins the November election may face pressure from investors to address the issue. Wells Fargo Investment Institute Global Fixed Income Strategist Luis Alvarado believes that the high amount of debt and projected deficit will likely lead to a reaction from bonds.
The uncertainty surrounding the candidates’ plans to address the deficit makes it challenging to predict how bond vigilantes will react after the election. However, the government’s interest payments on its debt are growing, putting more strain on the budget. This could create conflicting views between the Federal Reserve and the government on how to manage inflation.