Treasury Yields Unlikely to Hit 5% Under Trump, Strategist Says

As President-elect Donald Trump prepares to take office, investors are grappling with the potential impact of his economic policies on Treasury yields. While some strategists anticipate a rise in yields due to Trump's proposed tax cuts and infrastructure spending, one strategist believes that Treasury yields are unlikely to reach 5% under his administration.



The strategist, who wished to remain anonymous, cited several factors that could keep Treasury yields in check under Trump. First, the strategist noted that market expectations and Fed policy are aligned, with short-term Treasury yields expected to fall in 2025. This suggests that investors anticipate a dovish stance from the Federal Reserve, which could help maintain lower yields.



Second, the strategist pointed to the role of bond vigilantes, who can exert pressure on governments by driving up borrowing costs. In the case of Trump's election, bond investors have reacted with concern to his economic policies, leading to a sharp sell-off in global bond markets. However, this reaction has been tempered by the market's expectation that Trump's policies may not be as extreme as initially feared.

The strategist also noted that Trump's policies may be more moderate than his campaign rhetoric suggested. For instance, his pick for Treasury Secretary, Scott Bessent, is seen as a Wall Street-friendly choice who could temper some of Trump's more aggressive proposals, such as high tariffs. Additionally, a divided government, with Republicans winning control of the Senate and a close race for the House of Representatives, could limit Trump's ability to implement his most ambitious economic policies, potentially reducing the impact on Treasury yields.



Lastly, the strategist highlighted the market's optimism about Trump's presidency, which has led to a rally in stocks and other risky assets. This positive sentiment could help keep Treasury yields from reaching 5%.

While the strategist's outlook is cautiously optimistic, it is essential to remain vigilant about potential risks and uncertainties. Trump's economic policies, such as tariffs and tax cuts, could still impact Treasury yields, depending on various factors, including the Fed's response and the overall economic outlook.

In conclusion, while some strategists anticipate a rise in Treasury yields under Trump, one strategist believes that yields are unlikely to reach 5% due to market expectations, bond vigilantism, moderation in Trump's policies, and market optimism. However, investors should remain cautious and monitor the situation closely as Trump's administration takes shape.