Following Donald Trump’s reelection, bond yields surged, signaling possible challenges for U.S. borrowers hoping for relief. The 10-year Treasury yield jumped 18 basis points, reaching 4.477%, its highest since July 1, and 76 basis points higher than its level since the Federal Reserve’s first rate cut in mid-September. Longer-term Treasury yields also spiked, with the 30-year bond seeing a significant 24 basis point rise. These increases in Treasury yields are likely to influence the cost of consumer and corporate debt, adding pressure on those looking to secure a mortgage or auto loan.
The surge in bond yields is attributed to the market’s expectation that Trump’s fiscal policies, including broad tariffs, tax cuts, and possible deportations, would lead to inflationary pressures. This could result in the Federal Reserve revising its plan for further interest rate cuts. Experts suggest that the Fed may need to adopt a tighter monetary policy to keep inflation in check. As a result, consumer mortgage rates could exceed 7%, reversing the hopes of potential buyers who were hoping for improved affordability.
While markets still anticipate a 25 basis point rate cut in the upcoming Federal Reserve meeting, the chances of further cuts in December have diminished. Economists believe the Fed may take a more cautious approach to rate cuts in anticipation of inflation and labor market conditions under a second Trump term. Furthermore, Trump’s influence on the Federal Reserve may grow, with his potential to nominate a Fed chair more in line with his views on monetary policy.