Treasuries are poised for their best week since early September after a volatile five days of trading dominated by Donald Trump’s victory in the presidential election.
US bonds rallied again on Friday as investors trimmed the huge run-up in rates that greeted Trump’s win. Yields on 30-year bonds, which bore the brunt of Wednesday’s losses amid fear the incoming administration’s policies will boost inflation, retreated to 4.5% — taking a drop over the past five days to 7 basis points.
The US vote unsurprisingly dominated markets. So-called Trump trades — those that stood to benefit from his win, including bets against US bonds and on dollar strength — seesawed as investors sought hedges before election day, only to pile back in as the results became clear. Those wagers eased as the week progressed and as Federal Reserve Chair Jerome Powell said it was still too early to consider the impact of the next government’s fiscal policies.
“Market participants are thinking that policy measures may not come as soon as previously thought,” said Evelyne Gomez-Liechti, a rates strategist at Mizuho. “This unwinding looks like a tactical move.”
Uncertainty heading into the US election boosted a gauge of Treasuries volatility to the highest in more than a year. While measures of likely price fluctuations have moderated, with the ICE BofA MOVE Index down the most this week since April 2023, investors remain on edge about whether Trump will fully implement the tariffs and tax cuts he touted on the campaign trail.
That’s fueled warnings about lurking ‘bond vigilantes’ — a term coined by Ed Yardeni in the early 1980s to describe investors who seek to exert power over government policies by selling their bonds, or threatening to do so. Powell, meanwhile, described the path of US debt as unsustainable at the press conference following the Fed’s decision to lower interest rates on Thursday.
Still, US debt auctions this week went off without a hitch, including a sale of 30-year securities that attracted strong demand. And the Fed’s decision to ease monetary policy further and signal more cuts to come gave investors another reason to buy Treasuries.
“A buyers’ strike on US debt really shows no signs of happening,” said Tom Roderick, a portfolio manager at hedge fund Trium Capital. “The US is the global reserve currency, investors will continue to park their assets in the US unless there is another alternative.”
This article was provided by Bloomberg News.