Long-Term Interest Rates Surge Following Trump’s Election Victory
The 10-year Treasury rate surged nearly 20 basis points the morning after the 2024 election. Many investors may be wondering why rates are rising despite the beginning of the Federal Reserve’s rate-cutting cycle. To understand why rates spiked on November 6, it’s important to examine how previous elections have impacted bond yields and economic expectations.
Factors Impacting Bond Yields in November 2024
Interest rate rose following each of the last two elections. This is largely due to the boost in confidence among consumers and business leaders once election results are finalized. Uncertainty tends to unsettle markets, and election outcomes provide political clarity, regardless of which party wins. While Federal Reserve Policy largely influences short-term bond rates, long-term yields on 5- and 10-year bonds are driven by factors such as long-term rate expectations, supply and demand, and a variety of economic influences.
Today, November 6, it appears that the rise in the 10-year Treasury rate reflects investor confidence that new government policies will support business performance. Major stock indices are up between 2.0% and 3.2% as of noon Eastern. This signals that investors are shifting towards riskier assets like stocks, prompting a substantial wave of bond selling. The good news is that the economic outlook is optimistic; however, the downside is that interest rate are likely to increase in the short term due to higher growth expectations, debt to GDP issues, and elevated core inflation figures.
The Federal Reserve is meeting on November 6 and 7. There are expectations of a 25-basis-point rate cut in both November and December going into this meeting. The Federal Funds Rate isn’t the sole determinant of long-term interest rates. However, they do influence short term indices (Prime and SOFR). The post-election economic confidence may fade slightly in the coming weeks. This will potential lead to downward pressure on borrowing costs in the months ahead.
Investors should keep an eye on upcoming economic data releases. More specifically, the Federal Reserve Press Conference on November 7, Consumer Sentiment on November 8, and CPI data on November 13. If economic data comes in stronger than expected, interest rates may not decline until 2025. However, if the economy appears to see higher unemployment, slow growth, headline bank credit risk, the Fed will undoubtedly act which could put pressure on the longer end of the yield curve supply CRE investors with much added borrowing rate relief.
