Sudden Return of the Trump Trade Sends Treasurys Reeling: Investors bet that a Republican sweep would allow tax-cut extensions

Wall Street Journal ^ | 07/05/24 | Sam Goldfarb

[SeekAndFind]

The increasing likelihood of a second Trump administration has helped spark a selloff in U.S. government bonds, with investors betting policies including tax cuts could drive up deficits and inflation.

Treasury yields, which rise when bond prices fall, started surging June 28, a day after a debate between President Biden and former President Donald Trump that Wall Street viewed as delivering a major blow to Biden’s re-election chances. A poor showing from Biden could also help tip control of Congress to Republicans, creating more space for their budget priorities.

“Something obviously changed pretty quickly on Friday,” said Dan Mulholland, head of rates trading and sales at Crews & Associates. Investors, he said, are assessing “how we’re going to move forward after the Thursday debate, and I think there have been some pretty big bets that have been placed.”

A rule of thumb on Wall Street holds that budget deficits tend to be larger under one-party control. Many investors think that elevated deficits have already played a role in driving up Treasury yields in recent years by increasing the supply of bonds that the market must absorb and putting upward pressure on inflation—prompting the Federal Reserve to set interest rates higher than they would have done otherwise.

As a candidate this year, Trump has made broad promises about cutting taxes. He has also said he would impose sweeping tariffs, which analysts say could have an uncertain economic impact, potentially adding to inflation but also raising revenue and slowing economic growth.

Investors, though, have focused mostly on how large pieces of a 2017 tax law are scheduled to lapse after the end of next year. Many expect a Republican-controlled Congress and White House would extend all of them, reducing projected revenue by nearly $4 trillion over the next decade.

[SeekAndFind]

President Biden wants to only extend tax cuts for households making under $400,000, letting taxes rise for those above that threshold. Administration officials say any tax-cut extensions must be offset with higher taxes on high-income households and corporations, a goal that could prove challenging even if Democrats do well in November.

[Paladin2]

I didn’t see this in T-Bill World today.

[proxy_user]

Since the Treasuries in brokerage account all show no change, I suspect there was no trading today. They’re probably taking a 4-day weekend.

[Paladin2]

Nope.

T-Bills were set for maturity on 7/5, Fri ilo the frequent Thursday [7/4].

One could also buy some today....

I think the Market was open all day.

[Theoria]

Expect another credit event next year in the form of a credit downgrade. The politicians are not serious about cutting spending. Inflation will not be handled unless with a recession.

[Neanderthal]

"Since the Treasuries in brokerage account all show no change, I suspect there was no trading today. They’re probably taking a 4-day weekend."

***********************************************

Treasury interest rates fell across the board on Friday. The 5 year fell 10 basis points or 2.41%.

[iamgalt]

“investors betting policies including tax cuts could drive up deficits and inflation.”

Never Trumper BS from WSJ. Tax cuts increase revenues every time.

[VanShuyten]

https://www.treasurydirect.gov/instit/annceresult/press/preanre/2024/R_20240703_2.pdf

The 4-week rates are @ 5.2%.

[PeterPrinciple]

A rule of thumb on Wall Street holds that budget deficits tend to be larger under one-party control.

---

a rule of thumb has exceptions

Tough times is the cure. We will see some.

It is going to take a generation to change things

[mewzilla]

Meanwhile, on the other side of the pond...

Keir Starmer dodges major question as 'two words' hint at imminent tax hikes Keir Starmer held a press conference at Downing Street after Labour's landslide General Election win - with two key words hinting at tax rises.

The EU's cash cow is back in the barn!

[Wuli]

Making the 2017 tax cust permanent has to also include deep federal budget cuts at the same time. The borrowing binge cannot continue.

[Neanderthal]

"The 4-week rates are @ 5.2%."

********************************************

Yes. I said the 5 year fell by 10 basis points, from 4.322% on Thursday to 4.218% on Friday. That is a drop of 2.41%.

[cgbg]

I am staying short term on this stuff—regardless of how the politics goes.

The reason is that if there is major inflation there will be plenty of opportunity to lock in much higher long term rates.

If there is not major inflation then my cost of living does not rise substantially so all is good.

[DNME]

Will Trump capitalize on the overturn of the Chevron doctrine and FINALLY start dismantling the Federal Behemoth?

[SunkenCiv]

IOW, same partisan media gaslighting, different day.

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• FED Warns Against Rising Delinquency Rates, Calls It A "Leading Indicator That Things Are About To Get Worse [05/29/2024]
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• Bidenomics Warning! Fed's Favorite Inflation Indicator Prints Hotter-Than-Expected As Savings Rate Plunges (Govt Wages Rose To 8.5% YoY, Private Sector Wages Up 5.5% YoY) [04/26/2024]
• Wall Street Journal: Biden's Migration Spikes Interest, Mortgage Rates [05/13/2024]
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• Surprise! Citi Economic Surprise Index Crashes To -7.30 (Home Prices UP 32% Under Biden, Mortgage Rates UP 160%) [05/04/2024]
• The most dysfunctional state in America? Soaring unemployment, sky-rocketing debt and punishing taxes send residents fleeing (Illinois) [05/03/2024]
• Housing Crisis Escalates: Rents Outpace Wages in 197 U.S. Counties, Debt Burdens Rise, and Bankruptcy Filings Surge [01/30/2024]

  ---

• 'We just can't take this anymore': Montana man, 68, begs for 'moratorium on property taxes' after his bill reaches $8K a year just 'to live in our own house' [06/11/2024]
• Hundreds of nursing homes in Florida forced to close due to surging property insurance rates [05/20/2024]

[GOPJ]

Any news today on this issue?

[Paladin2]

I only looked at offered rates [3 through 9 months] today for a couple of minutes.

Rates still seem to be largely unchanged.

Thursdays are when most of my T-Bill ladder rungs mature, so I’ll be looking closer on 7/11.

[central_va]

with investors betting policies including tax cuts could drive up deficits and inflation.

One problem, that is not what happens. Revenue goes up and there is no effect on inflation.

[central_va]

Tax cuts increase revenues every time.

bump

[central_va]

Revenue and spending are totally seperate issues and IMO need to be treated as such.