Treasury yields rose in early trading Tuesday evening as investors awaited results from the tight presidential race between Vice President Kamala Harris and former President Donald Trump.
The 10-year Treasury yield traded 13 basis points higher at 4.42%. The yield on the 2-year Treasury was also up by 10 basis points to 4.30%. One basis point is equivalent to 0.01%. Yields and prices have an inverted relationship.
Even though none of the major swing states were called yet by NBC News, traders speculated the early returns were favoring the former president.
Bond yields could see a big pop in the event of a Trump win, and they could surge in a Republican sweep, where the party captures control of Congress and the White House. That is because Republicans may introduce tax cuts and steep tariffs, moves that could widen the fiscal deficit and reignite inflation.
"If there's a Republican sweep of House, Senate and the presidency, I expect the bond market to be wobbly," Jeremy Siegel, finance professor at the Wharton School of the University of Pennsylvania, said on CNBC's "Squawk Box" on Tuesday. "I expect them to be worried that Trump would enact all those tax cuts, and I think bond yields would rise."
Neither Trump nor Harris really promised fiscal discipline on the campaign trail, raising worries that investors will demand higher yields in exchange for holding Treasuries as the government is forced to issue more and more debt to fund its ballooning spending.
The yield can be expected to approach 4.5% in the event of a Trump win, or fall toward 4% under a Harris victory, according to Stephanie Roth, chief economist at Wolfe Research.
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A Harris administration with a divided Congress may prompt bond yields to retreat.
"I think a split Congress, whoever wins the presidency, is probably the favorite for the markets, so that neither candidate can get his or her full plan pushed through," Siegel said.
The benchmark 10-year Treasury yield surged 50 basis points in October, marking the biggest monthly increase since September 2022.
On Thursday, the Federal Reserve will make its next decision on interest rates and is widely expected to slash rates by a quarter point.
