U.S. 10-year Treasury yields soar alongside Donald Trump’s rising odds of winning elections

The U.S. 10-year Treasury yields have surged to a three-month high ahead of the anticipated 2024 U.S. presidential elections. The sudden upward trajectory of the benchmark 10-year U.S. bond yields coincides with the rising odds of Republican presidential candidate Donald Trump winning the November elections.

The 2024 U.S. presidential election polls show Republican candidate and former president Donald Trump and Democrat candidate and current Vice President Kamala Harris are in a tight race with an almost equal chance of winning. However, Trump’s odds of winning the election have risen as the election nears. The markets may have started to react in line with his proposed economic policies. 

Polls show Trump could win the election, sending bond yields soaring

📈 U.S. 10-year Treasury yields are surging alongside Donald Trump's rising election odds.

His proposed tariffs on Chinese imports may fuel inflation, complicating Fed rate cuts.

Higher yields dampen interest in riskier assets like crypto. pic.twitter.com/83iJb3T66J

— Satoshi Club (@esatoshiclub) October 28, 2024

According to a chart shared by Satoshi Club on X, Donald Trump’s chances of winning the elections stand close to 60%, while Harris has a 40% chance. U.S. 10-year Treasury yields consequently soared to about 4.23%, the highest since August 4th. 

The former president is likely to impose tariffs on U.S. imports from China and crack down on illegal immigration. His economic policies may heighten inflation and, therefore, challenge the Fed interest rate cuts anticipated in the next two meetings before the year ends.

Some investors are wary of new policies from the incoming president regardless of who assumes office after November 5th. The election’s outcome could impact government spending and alter inflation levels. However, the rise in bond market yields coincides with Trump’s possible return to the White House with new tariff policies. Part of investors’ cautionary stance involves the purchase of U.S. bonds ahead of the forthcoming elections.

The 10-year Treasury yield fell from 4.260% to 4.214% after the elections, the highest level since July 26. The elections have created uncertainty and speculation, leading to mixed investor sentiments in the broader financial markets. 

Investors expect a more hawkish stance from the Fed after the election

Strong economic data and proposals from Republican candidate Trump have led to investors anticipating a less dovish sentiment from the Federal Reserve after the elections. The more hawkish investor sentiment has propelled yields higher due to increased pressure on the bond market.

The U.S. Federal Reserve cut rates by 50 basis points in September, bringing them down to the 4.75%- 5.00% range. Analysts anticipate two more rate cuts before 2024 ends. The Fed hiked interest rates in 2022 and 2023 in response to the country’s rising inflation at the time.

If Donald Trump wins the elections, the Fed may not proceed with the anticipated 50bs rate cut. However, the probability of another 50 basis point rate reduction in the final two Fed meetings of 2024 has declined from 86% recorded a week ago to 66%. The current rate cut probability assumes a 32% chance of a single 25 basis points cut by the end of 2024 but only a 2% chance that the rates will remain as they are.