What's driving US bonds these days?
Gov. bonds and Spread
Posted by MoneyController on 30.10.2024
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Bond yields and, in particular, US government bonds are rising: but perhaps it is the economy that is driving this growth rather than the upcoming elections.
It would be a fairly consensus view that bond yields are driven by the prospect of a forthcoming US government led by Donald Trump. Nevertheless, Randall W. Forsyth believes that the real driver of the US bond market remains the economy. The rise in interest on Treasuries, in particular, would be due to two factors: on the one hand, the Federal Reserve's cut in interest rates and, on the other, the positive performance of the economy, both in terms of GDP and employment. But a soft landing (lowering rates with a growing economy) could lead to the re-emergence of another problem: inflation.
Forsyth writes that it is true that the markets - even in the climate of uncertainty about the outcome - believe that a re-election of Trump is more likely; however, the rise in bond yields is more about correlation and not causation. Both aspirants for the White House, moreover, aim to implement expansive economic policies, although the projections estimate Trump's promised increase to be much greater: according to the Committee for a Responsible Federal Budget, the debt with Trump would rise by 7.5 trillion dollars, and with Kamala Harris by 3.5 trillion.
As Federico Rampini (‘Corriere della Sera’) writes, the markets seem, in particular, rather ‘calm’ when considering the approaching election deadline. This is because, explains Rampini, the markets are looking at the more general picture of the economy, which, indeed, is doing well. Moreover, even on the basis of the economic policies of governments, it is as if the markets sense that, beyond a few differences, the trajectory of the economy would not be particularly shaken by the victory of one or the other candidate. In short, returning to the article as Forsyth, it seems that the markets' response is what Bill Clinton's 1992 campaign manager, James Carville, once said: “It's the economy, stupid”.
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