Trump Faces Bond Market Pressure As 10-Year Yields Near 5%, Challenging Economic Agenda

The U.S. bond market is sending significant signals to Wall Street and Washington as Treasury yields approach levels not seen in nearly two decades, potentially complicating the incoming president-elect Donald Trump administration’s economic agenda.

What Happened: The yield on the 10-year Treasury has surged more than 1% since September, nearing the psychologically important 5% threshold. This sharp increase in government borrowing costs comes as markets reassess Federal Reserve rate cut expectations amid stronger economic data.

“It’s a combination of reset expectations of Fed rate cuts due to better economic prospects as well as an increase in real rates,” says Anna Wong, chief U.S. economist at Bloomberg Economics and former Federal Reserve economist who served in the previous Trump administration.

The bond market’s reaction partly reflects anticipated Trump policies, including proposed tariffs and immigration restrictions, according to Wong. These policies are “already acting as a restrictive force on the economy before being implemented,” she notes.

The rising yields could face heightened scrutiny in Congress, where slim Republican majorities control both chambers. Kate Davidson, Bloomberg’s managing editor for U.S. economic policy, suggests that concerned lawmakers might “throw a wrench into the process” of implementing Trump’s agenda, particularly regarding tax cuts and deficit spending.

See Also: BOJ’s Kazuo Ueda Signals Rate Hikes, Japanese Bond Yields Rise To 14-Year High?What The Recent Past Tells Us About Impact On US Markets

Why It Matters: Mohamed El-Erian, Chief Economic Advisor at Allianz, projects the 10-year yield could “spend quite a bit of 2025 in the 4.75-5% range.” This outlook comes as debt servicing costs now exceed the defense budget, raising fiscal sustainability questions.

While Trump has celebrated the stock market’s $3 trillion gain since the election, bond market dynamics may pose challenges to his economic plans. Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, expects rates to remain elevated, forecasting “10-year U.S. Treasury yields in the 4.50 to 5.00% range” through early 2025.

These developments occur as Federal Reserve officials express increased uncertainty about the economic outlook, using variations of the word “uncertain” twelve times in recent meeting minutes, according to LPL Financial’s chief economist Jeffrey Roach.

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Disclaimer:?This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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