The 10-year Treasury yield continued to rise Wednesday, extending a big run over the past five weeks. A big factor appears to be rising Wall Street bets that former President Donald Trump will regain the White House.
The 10-year yield rose four basis points to 4.23% Wednesday, the highest in nearly three months. The benchmark yield has surged 16 basis points so far this week, including 11 basis points.
The 10-year Treasury yield bottomed at 3.6% on Sept. 17, a day before the Federal Reserve cut interest rates by 50 basis points.
Market View: Trump Win Would Lift Treasury Yields
Since then, U.S. economic reports have come in stronger than expected. That has curbed market bets for big Fed rate cuts, though investors still see two quarter-point cuts in 2024. Long-dated Treasuries are more sensitive to economic strength or weakness, while Treasury bills and two-year Treasury note are more closely tied to Fed policy.
Added to that has been some China stimulus. While markets aren't convinced Beijing is doing enough, China's moves are providing some support for the Chinese economy and global demand for industrial commodities.
Now, over the past couple of weeks, market expectations of a Trump victory have picked up, amid improving polls nationally and in key swing states. The race remains extremely tight between Trump and Vice President Kamala Harris.
The general market view is that a Trump presidency could mean higher budget deficits and inflation, based on his mix of tax-and-spending policies and big tariff hikes. A lot of that depends on whether he's able to enact his agenda. Control of Congress, especially the House of Representatives, remains in flux.
The stock market rally in recent months has gotten a big tailwind from lower Treasury yields. So far, the rebound in Treasury yields hasn't derailed the rally, with the S&P 500 right at record highs.
But there are signs that rising yields are starting to drag on the major indexes.
Rate-sensitive homebuilders and construction plays are already coming under heavy pressure, partly due to mixed earnings from PulteGroup and NVR.
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