The countdown to "Trump 2.0": 10-year U.S. Treasury yields may soar to 5%
As Trump's inauguration approaches, bond traders expect the yield on the U.S. 10-year Treasury to soar to 5%, the highest level since October 2023. The U.S. economy is steadily growing, and the market speculates that Trump's return to the White House will stimulate inflation and increase the deficit, causing yields to rise to nearly 4.7% over the past month. More Treasury bonds are expected to be issued in the coming weeks, as investors prepare for a significant rise in yields. Options data indicates a target of reaching a 5% yield on the 10-year Treasury by the end of February
According to the Zhitong Finance APP, as the inauguration of Donald Trump, the elected President of the United States, approaches, bond traders are preparing to cope with fluctuations in the U.S. Treasury market. Options indicate that the yield on the U.S. 10-year Treasury bond could soar to 5%, the highest level since October 2023.
As the U.S. economy steadily grows, speculation arises that Trump's return to the White House will accelerate inflation and increase the deficit, leading to a rise of about half a percentage point in the yield on the 10-year U.S. Treasury bond over the past month, reaching nearly 4.7%. This week, a large issuance of corporate bonds and a $119 billion U.S. Treasury auction have increased upward pressure on yields. It is expected that the U.S. government will issue more bonds in the coming weeks.
Gargi Chaudhuri, Chief Investment and Portfolio Strategist for BlackRock Americas, stated, "We need a bit of certainty in fiscal policy, and as the inauguration takes place, we will hear more on this front. The uncertainty surrounding U.S. Treasury issuance will deter buyers."
Traders expect the yield on the 10-year U.S. Treasury bond to rise to 5%.
Meanwhile, economic data such as job vacancies and service sector data released on Tuesday were relatively optimistic, pushing expectations for further rate cuts by the Federal Reserve to the second half of this year.
In this context, investors are preparing for a significant rise in yields. Options data released by the Chicago Mercantile Exchange on Tuesday shows that the new trading target is for the yield on the 10-year U.S. Treasury bond to reach 5% by the end of February. This may just be the beginning: Padhraic Garvey, Global Head of Debt and Interest Rate Strategy at ING, expects the yield on the 10-year U.S. Treasury bond to be around 5.5% by the end of 2025, while Arif Husain from T. Rowe Price indicated that a 6% yield is achievable.
As U.S. Treasury yields have surged recently, short positions in the futures market seem to be increasing as well. Over the past five trading days, the open interest in so-called ultra-long U.S. Treasury bond contracts (a measure of market activity) has risen daily. Furthermore, in the past nine trading days, the open interest in long U.S. Treasury futures contracts has increased on eight of those days. An increase in open contracts during a market sell-off indicates that investors are ramping up bearish bets.
It is certain that despite steadily rising yields, some investors see opportunities as the new trading year begins. JP Morgan's latest client survey shows that long positions have increased to the highest level in over a year, although short positions have also risen in the past week.
According to the JP Morgan client survey, for the week ending January 6, long positions increased by 8 percentage points, reaching the highest level since December 4, 2023, while short positions increased by 6 percentage points.
JP Morgan client survey
