How did the U.S. bond market perform in the first week of Trump's presidency?
At the end of the first week of Trump's second presidential term, the performance of the U.S. bond market was basically the same as at the beginning. The yield on the 10-year Treasury bond was around 4.63%, with little change. Although concerns about debt sustainability and inflation remain, the president has lowered the threat of tariffs, temporarily soothing the market. The Federal Reserve is expected to keep interest rates unchanged, and a sell-off may occur in the future, with the yield on the 10-year Treasury bond potentially moving towards 5%
The Zhitong Finance APP noted that at the end of the first week of Trump's second presidential term, U.S. bond prices performed similarly to when he first took office.
On Friday, the yield on the U.S. 10-year Treasury bond was about 4.63%, showing little change from a week ago. This is unusual, as the Bloomberg Bond Index is expected to record its smallest increase since September.
Given the scrutiny of U.S. debt sustainability and the trade war that could exacerbate inflation, the market's concerns about bond sell-offs before Trump's inauguration stand in stark contrast. However, the market was temporarily soothed as the president lowered tariff threats, with Trump stating on Thursday that he did not wish to impose such tariffs on China.
The bond market was not without activity. On Monday, the first day of Trump's presidency, U.S. Treasury yields briefly fell to 4.53%, before climbing back to 4.66% on Thursday. However, during the first week of Trump's presidency, there was not much major economic data, and Federal Reserve policymakers entered their routine quiet period ahead of the interest rate decision to be announced next Wednesday.
Subadra Rajappa, head of U.S. interest rate strategy at Société Générale, wrote in a client report: "While we expect U.S. Treasury yields to remain range-bound ahead of next week's FOMC meeting, we do not rule out the possibility of a sell-off." This could push the 10-year Treasury yield towards 5%, "as we receive more information regarding tariffs, which is a key policy focus of the Trump administration."
Economists and money market participants surveyed unanimously expect Federal Reserve Chairman Powell and his colleagues to keep the key benchmark interest rate unchanged in the range of 4.25% to 4.5% next week. Looking ahead, interest rate swaps currently lean towards two rate cuts of a quarter percentage point each before the end of the year, compared to just one cut last week