Treasury yields have surged in recent weeks, putting pressure on the stock market as 2024 comes to a close. Economist Ed Yardeni of Yardeni Research attributes the surge to “bond vigilantes” who are concerned about the impact of Donald Trump’s policies on inflation and deficits.
The 10-year Treasury yield has jumped to 4.62%, its highest level in six months, with a 100-basis-point spike since September when the Federal Reserve began cutting rates. This increase is partly due to growing market bets that Trump would win the 2024 election and push for inflationary policies.
Yardeni warns that the surge in yields could signal an economy that doesn’t need stimulus, as the Fed seems to be stimulating growth that may not be sustainable. He also notes that the bond vigilantes are losing confidence in Jerome Powell’s monetary policy outlook, citing concerns about Trump’s plans to raise tariffs and cut taxes.
However, Yardeni remains bullish on the stock market, expecting a “pullback/correction” before it continues its bull run under Trump 2.0’s economic policies. He projects the 10-year Treasury yield trading around 4.5% in 2025, but is watching the deficit outlook closely.
The surge in yields has triggered a sell-off in the stock market, with the S&P 500 down nearly 3% and the Nasdaq composite off 3.6%. As the economy adjusts to Trump’s policies, investors will need to monitor Treasury yields and other economic indicators to gauge the impact on growth and inflation.
Source: https://www.investors.com/news/economy/bond-vigilantes-warning-donald-trump-fed-chief-powell