10-Year Yield Jumps on Election News

Carol Ng, a managing director at hedging consultancy Derivative Logic, has started seeing the wave of practical concern as many clients “came out of the woodwork.”

“The ones that traded their interest rate cap extensions before the election wanted to take risk off the table,” Ng tells GlobeSt.com. “I see clients with a strong view, number one because of Trump winning, and number two, [they thought] if Trump won, rates would go higher.”

And that’s the take, at least for now — questions about the economy going forward.

Yields on the 10-year Treasury started rising shortly after it was clear that Donald Trump had won the election. By 11 p.m. Eastern time, it was up to 4.47%. Market close on Election Day it was 4.26%, a 21-basis-point jump in a few hours – highly unusual in the Treasury world. Wednesday closed at 4.42%, a slight calming, but returning to 4.43% before midnight.

“An increase in yields despite the Fed’s 50-basis-point rate decline is an indication of uncertainty for corporate earnings and the macroeconomy and in particular, increasing the government debt’s impact on the dollar,” FTI consulting managing director Glenn Brill told GlobeSt.com. “For commercial real estate it means more expensive capital as the markets feed on negative sentiment and concern over structural aspects of the economy well beyond the Feds’ control, including housing prices, geopolitical events, and U.S. trade policy.”

Or, to put it in somewhat simpler language, Myles Perkins, owner of AGM Financial Services, which provides commercial FHA financing for multifamily developers, told GlobeSt.com, “The immediate reaction from the bond market to the Trump election was a sharp rise in Treasury yields because of the perception that Trump’s tax and trade policies will increase the debt and deficit while also stoking inflation through added tariffs on foreign goods imported to the U.S.”

The impact of the fiscal plans of both candidates was analyzed in late October by the Committee for a Responsible Federal Budget. They estimated that under Harris’s plan, the national debt would increase by $3.95 trillion through 2035. That would have been the result of “$7.65 trillion of deficit-increasing measures, $4.25 trillion of deficit-reducing measures, and $550 billion of interest costs.”

They estimated that Trump’s plan would increase the debt by $7.75 trillion “as a result of $10.40 trillion of deficit-increasing measures, $3.70 trillion of deficit-reducing measures, and $1.05 trillion of interest costs.”

No one- or two-day change in basics is guaranteed to have an ongoing impact. But the irony would be high if a president with a background in CRE could potentially be a reason why interest rates rise.