Bond traders are entering the new year with renewed concerns about inflation and President Donald Trump’s inauguration.
Long-term bonds have suffered a sharp decline, with the benchmark 10-year Treasury yield rising to more than 4.6%, almost a percentage point above the level it was at when the Fed began easing monetary policy in September. The 30-year bond yield exceeded 4.85% on that day.
A $119 billion bond issuance is scheduled for this week, raising concerns that Republicans will increase spending and widen the budget deficit. President Trump called on Congress to quickly consider the 2017 tax cut extension bill. House Speaker Mike Johnson is pushing a bill that would include funding for mass deportations and raising or eliminating the debt ceiling.
Jack McIntyre of Brandywine Global Investment Management said sticking with short-maturity bonds “isn’t a bad approach at this point.” “Until we see the pain in the economy, it’s better to do nothing, even if yields rise considerably.”
There are hints of that economic pain in Citigroup’s Economic Surprise Index, a measure of how data is performing against expectations. It has fallen in six of the past seven weeks, meaning the economic data has been weaker than expected.
