Jamie Spencer
The yield on 30-year US Treasuries surged to the highest level in more than a year on Monday, offering a preview of how financial markets might react under President-elect Donald Trump’s leadership in the months ahead. Rates on the long bond climbed as much as 5 basis points to 4.86%, the highest since November 2023.
This increase was driven by soft demand during the first of three Treasury auctions scheduled for this week and stiff competition from high-grade corporate bond offerings vying for investor cash.
Upcoming Treasury Auctions Add Pressure
Investors are bracing for auctions of 10- and 30-year Treasury notes on Tuesday and Wednesday—moved forward due to Thursday’s state funeral for former President Jimmy Carter. Yields reached session highs following Trump’s dismissal of a Washington Post report suggesting a narrower tariff plan might be under consideration. Concerns about trade protectionism fueling inflation have weighed on bond markets since Trump’s election in November.
Market Commentary
“You have a tremendous amount of debt hitting the marketplace,” said Gregory Peters, co-chief investment officer at PGIM Fixed Income, during an interview with Bloomberg TV. “The supply just keeps coming. Couple that with inflation concerns, and it’s putting more pressure on bond markets.”
The three-year note auction on Monday drew 4.332%, surpassing pre-auction yield expectations, signaling tepid demand.
Longer-Maturity Bonds Hit Hardest
Longer-term bonds have faced the brunt of recent selling pressure. The 10-year yield has climbed approximately 50 basis points since early December, reaching 4.64% on Monday, its highest level since May 2024. This places the 10-year yield about 35 basis points above two-year rates, the largest premium since May 2022.
Outlook for Higher Rates
Jim Bianco, founder of Bianco Research, predicted that the 10-year yield could rise toward 5%, a level last seen in October 2023. “We’re in a secular rise in interest rates,” Bianco said on Bloomberg Television. “It didn’t end 15 months ago.”
Survey Reflects Investor Sentiment
A recent MLIV Pulse survey of 553 respondents revealed that 57% anticipate higher Treasury yields as 2025 begins. This aligns with the Federal Reserve’s December outlook, which scaled back the expected number of rate cuts this year to just two quarter-point reductions.
Wider Implications
Higher yields are influencing other asset classes. Morgan Stanley strategists have highlighted that rates are “the most important variable to watch” for stocks in early 2025. In currency markets, the rise in yields has bolstered the dollar, which recently posted its strongest yearly advance in nearly a decade.
Political and Economic Impacts
Bloomberg strategist Garfield Reynolds commented, “Bond investors may be facing a lose-lose dynamic coming out of Washington. A smooth passage of big spending plans would hurt, but so might political chaos that brings debt-ceiling angst back into play.”
House Speaker Mike Johnson stated on Sunday that an all-encompassing bill addressing Trump’s legislative priorities could be ready for signing as early as April or May. However, any resurgence in inflation could slow the pace of Federal Reserve rate cuts, as emphasized by recent comments from Fed officials like San Francisco Fed President Mary Daly.
