How the U.S. Election Could Impact Bond ETFs
With the U.S. election results approaching, bond market investors are on alert for potential impacts. While stock markets often take center stage, bond reactions are equally critical. For instance, iShares 20+ Year Treasury Bond ETF (TLT) surged nearly 2% on Monday as the election race tightened, reflecting bets on how bond yields might respond under each candidate. Here’s what to know about how the election could impact bonds and the other key factors to watch.
How Trump and Harris Policies Could Differently Impact Bonds
Market watchers believe Trump and Harris may have different impacts on bond yields. Over the past month, the 10-year Treasury yield rose when Trump’s odds improved, but it fell when Harris seemed more likely. Trump’s policies, viewed as more likely to increase deficits and inflation, are expected to drive up yields. On the other hand, Harris is seen as favoring more moderate policies, potentially putting less upward pressure on yields.
Estimates from the Committee for a Responsible Federal Budget show Trump’s policies could increase the national debt by $7.75 trillion by 2035, compared to a $3.95 trillion rise under Harris. This larger debt could lead to more inflation and higher bond yields. A Wall Street Journal survey supports this, with most economists believing inflation would be higher under Trump than Harris.
TLT’s Price Movements Show Market Sensitivity
TLT’s recent price moves highlight how closely markets are watching the election. The ETF’s nearly 2% jump on Monday reflects expectations that yields could decline if the race stays close. Previously, as Trump’s win seemed more likely, TLT was trending down—a sign the market expected his policies would push yields higher.
However, the “Trump = higher yields, Harris = lower yields” view isn’t guaranteed. Election results are only one factor among many that affect the bond market.
The Role of Fed Policy and Economic Data
Beyond the election, the Fed’s actions remain crucial. The Fed’s meeting this week is expected to lead to a 25-basis-point rate cut, which could put further downward pressure on yields if there are signals of future cuts. Key economic data on jobs and inflation will also influence yields as they reveal more about U.S. economic health.
Key Takeaways for Investors
While the election outcome could impact bond markets in the short term, it’s not the only factor driving bond yields. Investors should also consider Fed policy and economic data when analyzing bond ETFs. Markets respond to a range of factors, so no single event fully dictates bond yield directions.
$iShares 20+ Year Treasury Bond ETF(TLT)$ $SPDR S&P 500 ETF Trust(SPY)$ $Direxion Daily 20 Year Plus Treasury Bull 3x Shares(TMF)$
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