• The Bond Market’s Ballot
  • How Is the U.S. Election Playing in Overseas Markets?
  • Proposed Policies Will Favor Some Industries And Hamper Others

Arriving in New Zealand after a 12-hour flight delay, I got to the hotel and went straight to sleep. After an hour or so, I was awoken by what sounded like scratching along the walls and groaning from above. The neighbors, perhaps? Not this time … an earthquake had hit New Zealand’s southern island, and the building was shifting. Just as I was settling back down, my phone began chiming with a series of alerts covering the event. No rest for the weary.

It seems like seismic events are following me around. During discussions the next day, talk quickly shifted from the geologic tremors to the political tremors shaking the United States. It may take a while to get a full accounting of the impact, but one early casualty has been U.S. interest rates, which have risen sharply. Through the lens of the bond markets, we can get an initial view of how policies proposed by the incoming administration might influence the economy’s path.

The U.S. bond market has retreated since the election. Long-term yields have risen by almost 40 basis points. It appears that the 30-year-old bull market in bonds is really over.

Interest rates are reacting to several factors. First, several of the president-elect’s campaign proposals have the potential to create upward pressure on inflation. New tariffs would raise the prices of imports and might offer shelter for higher prices on domestic products. The prospective deportation of undocumented workers could raise labor costs. The transition away from the Affordable Care Act could increase health care costs.

Second, the prospect of additional deficit spending would increase the issuance of Treasury securities. Global investors have demonstrated an insatiable appetite for these instruments over the past several years, partly because of the fiscal discipline exercised by the Congress. If markets sense that this discipline is slipping, yields might continue upward.