Bond market selloff continues. What gives?

Yields on 10-year Treasurys rose even higher Wednesday, briefly hitting 4.25%

October 23, 2024 04:36 pm

Things/Shutterstock modified by Blockworks

This is a segment from the Forward Guidance newsletter. To read full editions, subscribe.

There is something going on in bond markets.

Yields on 10-year Treasurys rose even higher Wednesday, briefly hitting 4.25%. Two-year yields are also on the rise, reaching 4.07% Wednesday afternoon. (Remember, bond prices and yields are inversely related.)

What gives? A few things. Probably.

The first is the election. Polls are still saying the race between Trump and Harris is more or less a coin toss, even as betting markets continue to favor Trump. One theory is that bond markets are anticipating a Republican sweep and are reacting as such. There’s fear that Trump’s plans (higher tariffs, tax cuts, a crackdown on immigration) could send the deficit higher, so it makes sense that Treasurys are tanking.

I’d personally give this theory some weight. But I think the main thing dragging down bond markets are fundamentals.

As we also covered yesterday, economic data is strong. Maybe even too strong, or at least strong enough that analysts are questioning whether the Fed went too far in September. We know committee members said they see rates ending the year another half-point lower, but the market has its doubts. Higher interest rates means higher Treasury yields.

And then there’s the national debt. The federal deficit hit $1.8 trillion earlier this month. More debt = more bonds. Higher supply = lower demand. You get the idea. To be clear, I do think concerns about rising national debt are impacting bonds, but I think it’s a concern that goes beyond a potential second Trump presidency.

As always, this isn’t investment advice, but I think the flash sale on bonds might go on for a bit longer.

Get the news in your inbox. Explore Blockworks newsletters: