Investors weigh the potential for higher tariffs, tighter restrictions on immigration, and an extension of 2017 tax cuts to fuel inflation under a second Trump administration.
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Long-term interest rates surged Monday as investors who fund most mortgage loans and government debt weighed the potential economic impacts of higher tariffs, tighter restrictions on immigration, and an extension of 2017 tax cuts expected under a second Trump administration.
Mortgage rates had been trending down from 2024 highs seen in April, as a series of data releases showed inflation cooling in May.
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But President Joe Biden’s poor performance in polls after Thursday’s debate with Donald Trump has upped the odds Trump will win back the White House.
A CBS News/YouGov poll released Sunday found 72 percent of registered voters believe Biden doesn’t have the mental and cognitive health to serve as president, and 45 percent of registered Democrats believe he should abandon his campaign.
A Data for Progress poll found 67 percent of voters think Biden is too old to be president, but that alternative candidates the Democrats might field perform similarly against Trump.
Trump’s improving odds — and the prospect that Republicans might also retake control of the Senate — have analysts at firms like Barclays, Goldman Sachs and Morgan Stanley warning clients to hedge against inflation, Bloomberg News reported.
Economic policies laid out by Trump might reignite inflation and drive up rates on long-term government bonds, analysts say, along with rates on similar investments like mortgage-backed securities that fund most home loans.
Higher tariffs and a crackdown on immigration could increase inflationary pressure on prices and wages, for example, while Trump’s promise to make 2017 tax cuts permanent could add to the growing national deficit.
10-year Treasury yield surges
Source: Yahoo Finance.
Yields on 10-year Treasury notes, a barometer for mortgage rates, surged 14 basis points Monday, to 4.48 percent. A basis point is one-hundredth of a percentage point, so the 24 basis-point jump in 10-year Treasury yields since June 25 equals about one quarter of a percentage point.
Rate data tracked by Mortgage News Daily showed rates on 30-year fixed-rate mortgages jumped 7 basis points Monday, to 7.14 percent, and are up 11 basis points since June 25..
“Bond vigilantes” appear to be selling government debt in response to the fallout from the debate and the growing odds of a Republican sweep in November, Brandywine Global Investment Management portfolio manager Jack McIntyre told Bloomberg.
Bond markets had a similar reaction when Trump was elected in 2016 on promises to cut taxes while simultaneously boosting spending on infrastructure projects and fueling more government borrowing.
While much of the $8.4 trillion in new borrowing Trump approved during his first term was pandemic-related, he also signed off on $4.8 trillion in non-COVID debt, according to an analysis by the nonpartisan Committee for a Responsible Federal Budget. Biden approved $2.2 trillion in non-COVID debt in his first three years and five months in office.
The Tax Cuts and Jobs Act of 2017, which Trump has vowed to make permanent, is expected to add $1.9 trillion in government debt over 10 years even if it’s allowed to expire next year.
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