Bond Traders Brace for a Challenging Year Ahead Amid Trump’s Influence
Bond traders are feeling uneasy as Trump’s policies and a strong economy loom over the market
Bond Traders, Trump, US Economy, Treasuries, Inflation, Federal Reserve
Washington: Bond traders are stepping into the new year with a bit of anxiety. The US economy is holding strong, and with President Trump’s tax cuts and tariffs, there’s a lot of uncertainty in the air.
Recent economic data has been pretty solid, and Trump’s party has made a clean sweep in the elections. This has led to a downturn in the bond market as investors rethink their strategies.
Longer-term bonds have taken the biggest hit, with the yield on 10-year Treasuries climbing to about 4.6%. That’s a full percentage point higher than when the Fed started easing rates back in September. Shorter-term bonds haven’t been hit as hard, as they’re more stable with the Fed’s policy.
Priya Misra from JPMorgan pointed out that there’s a lot of worry about inflation due to tariffs and fiscal stimulus, but there’s also some hope for growth. This mix is driving rates up.
At the start of 2024, many were optimistic about a good year for bonds, expecting the Fed to lower interest rates. But those hopes seem to have been a bit premature, leaving investors cautious about jumping into the market.
Trump’s plans could push inflation higher, which might lead to more Treasury bonds flooding the market. Jack McIntyre from Brandywine Global suggests that sticking with shorter-maturity notes might be a smart move right now.
He believes it’s better to hold off until we see some real economic pain, even though yields have risen significantly. Futures traders think the Fed might keep things steady until at least June, with only a small rate cut expected in 2025.
Bloomberg strategists warn that if Trump quickly follows through on his plans, it could trigger a sell-off in Treasuries, but they expect yields to stay below 5%.
There’s a big test coming up with Treasury auctions starting Monday, a day earlier than usual due to the market closure for former President Jimmy Carter’s passing. These auctions will include new 10- and 30-year securities.
On Friday, the Labor Department will release its monthly employment report, which is expected to show a slight slowdown in job growth. If the numbers are weaker than expected, it could give bond prices a little boost.
Misra mentioned that a weak jobs report could bring discussions of a Fed rate cut back into play.
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