Loaning money to the U.S. government at 5% interest for a decade may seem enticing; however, rising Treasury bond yields indicate troubling economic forecasts under a second Trump presidency. The term premium, reflecting investor demand for higher interest above Federal Reserve rates, has increased due to inflation concerns spurred by proposed policies. Although such hikes might indicate growth, current investor sentiment suggests worries rather than optimism, as evidenced by rising long-term inflation expectations, which have implications for borrowing costs affecting both consumers and businesses alike.
Rising long-term rates are bad for businesses and households that need to borrow, since the cost of loans such as mortgages and auto loans are directly linked to 10-year Treasury yields.
The bond market is telling us something about the dawn of the second Trump presidency, and it's not pretty.
Most of the policies proposed by President Trump are expected to add to inflation, combining with an inflation rate that remains above the Federal Reserve's target.
Evidence of consumer and investor worry abounds, indicated by the University of Michigan's latest consumer survey which saw longer-term inflation expectations rise to 3.2 percent.
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