US Treasury Yields and Trump’s Election Win

Investing.com – US Treasury yields could rise to around 5% following Donald Trump's presidential election victory, impacting elevated equity valuations, according to analysts at JPMorgan Chase (NYSE:JPM).

Following Trump's win last week, the yield on the benchmark 10-year US Treasury note increased, which typically moves inversely to prices.

The rise in yield was driven by investor concerns that Republican tax cut plans could exacerbate the already-expanding federal deficit, leading to more bond issuance to cover the debt.

Additionally, investors remain wary that Trump's policies might increase inflation, prompting the Federal Reserve to slow interest rate cuts more than previously expected. Broader economic strength and labor market resilience are identified as further reasons for a less aggressive approach to reducing borrowing costs.

By late last week, the 10-year note yield eased from its post-election peak after the Fed cut interest rates by a quarter-point. Fed Chair Jerome Powell commented on the bond rates, noting, "things have been moving around, and we'll see where they settle."

As of Friday, the 10-year yield was around 4.31%. Bond markets are set to close on Monday for Veterans Day.

In a note to clients, JPMorgan analysts led by Mislav Matejka indicated that trends in the bond market, particularly any rise in yields, could be pivotal in determining the longevity of post-election equity surges.

They observed that bond yields jumped after Trump's previous victory in 2016, noting that the fiscal deficit then was significantly lower than today's. The US national deficit surpassed $1.8 trillion in the 2024 fiscal year, marking the third largest on record, according to Treasury Department data.

"We believe that around 5%, the impact of bond yields on equity valuations shifts from a positive/reflationary influence to heightened concerns regarding the sustainability of the economic upcycle and increased risk of downturns," they remarked.