Current economic conditions suggest that US Treasury yields are likely to rise in the near term due to inflation concerns and changing rate cut expectations. Speculation around former President Trump potentially winning the election raises worries about a resurgence of inflation from his tax cut policies. If inflation persists, investors may demand higher yields to offset the loss of purchasing power.
Additionally, the interest rate swap market indicates a reduced expectation for a Federal Reserve rate cut by the end of the year. If the Fed maintains or raises rates in response to inflation, this could further elevate Treasury yields. The upcoming election also introduces uncertainty, prompting investors to adopt a risk-averse stance, which lead to sell-offs in equities and push yields on Treasuries higher.
In summary, rising inflation concerns and shifting rate cut expectations are expected to drive Treasury yields up, compounded by pre-election volatility. @TigerStars @TigerGPT
US Treasury Yield Hits 4%! Will Rate Cut Estimates Force Market Down?
@Tiger_comments：On Wednesday, the benchmark 10-year US Treasury yield $Micro 10-Year Yield - main 2410(10Ymain)$, often referred to as the "global asset pricing anchor," hit 4.26%, its highest level since July. 1. Election trades and inflation outlooks have reduced expectations for rate cuts. The recent rise in the 10-year yield has nearly mirrored increasing speculation in betting markets that former President Trump will win the election. His tax cut policies could potentially reignite inflation. According to the betting site Polymarket, Trump currently has a 64% chance of winning the November election, while Harris trails with a 36% chance. However, Harris’s policies could also stoke inflation. Affected by inflation concern, the interest rate swap market has continuously lowered expectations for a Fed rate cut by the end of the year. The latest pricing indicates the Fed will cut rates by only 38 basis points for the remainder of 2024, with nearly a 50% chance of skipping a cut in one of the final two meetings. 2. Rising Treasury yields are putting pressure on the stock market. Interest-sensitive large-cap stocks like $NVIDIA Corp(NVDA)$ , $Apple(AAPL)$ , and $Amazon.com(AMZN)$ each fell more than 2%. Among the 11 sectors of $.SPX(.SPX)$, only utilities and real estate saw gains. Goldman Sachs strategists recently warned that elevated Treasury yields could attract capital away from stocks and into bonds or other assets. They project the S&P 500’s annual growth rate could be just 3% in the coming years, significantly lower than the 13% over the past decade and the long-term average of 11%. The market is expected to remain volatile in the next two weeks, with sell-offs driven by pre-election risk aversion. Will inflation and rate cut estimates change make US Treasuries yield higher? Will market pullback due to Treasury's forces? Leave your comments and also post to win tiger coins~
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Based on the current economic conditions and recent news, there are several factors that suggest US Treasury yields are likely to rise in the near term:
Inflation concerns: Speculation around former President Trump potentially winning the election has raised worries about a resurgence of inflation from his tax cut policies. If inflation persists, investors may demand higher yields to offset the loss of purchasing power.
Changing rate cut expectations: The interest rate swap market indicates a reduced expectation for a Federal Reserve rate cut by the end of the year. If the Federal Reserve maintains or raises rates in response to inflation, this could further elevate Treasury yields.
Pre-election volatility: The upcoming election introduces uncertainty, prompting investors to adopt a risk-averse stance. This can lead to sell-offs in equities and push yields on Treasuries higher.
Recent news articles support the analysis:
According to an article titled "US Treasury Yield Hits 4%! Will Rate Cut Estimates Force Market Down?"[^1^], Treasury yields have been climbing amid growing expectations that the Federal Reserve will lower interest rates at a gradual pace. This suggests a potential decrease in rate cut estimates, which could push yields higher.
Another article mentions that Treasuries slid for the third straight day as Federal Reserve rate-cut bets waned[^2^]. This indicates a reduced expectation of rate cuts and potentially higher Treasury yields.
Additionally, the article "Asian markets mixed as rate cut bets are trimmed; US vote in focus"[^3^] highlights that rate cut bets are being trimmed, suggesting a shift in market expectations and potential impact on Treasury yields.
Therefore, based on the current economic conditions, inflation concerns, changing rate cut expectations, and pre-election volatility, it is likely that US Treasury yields will rise in the near term.
Risk Disclaimer: Please note that the information provided is for reference purposes only and does not constitute investment advice. Investing in Treasury securities involves risks, including interest rate risk and inflation risk. Treasury yields can be influenced by various factors, and it is essential to conduct thorough research and consider your own risk tolerance and investment goals before making any investment decisions.