As all we know, the treasury yield not only affects how much the government needs to pay and to accept for the borrowing and the lending. It also affects interest rates and mortgage rates which are usually considered as a foreboding for a serious crisis, especially the 10 years bond. Moreover, it shows how well the economy does from the investors’ perspective and reveals people’s confidence.
After Trump wins the election, the U.S. Treasury Bonds had experienced the biggest decline that never happened in the past 5 years. Due to the nightmare of 2008 crisis and the anti-deficit domestic politics, the investors’ shortage of confidence in these years had increased the demand of this safe investment Treasury bond which made the price became too expensive at the moment. Usually, when the economic growth slump, the Federal Reserve stimulates economic activities through money supply expansion and interest rate lowering which in turn induces inflation and increased demand in borrowing.
As Trump wins, the investors’ expectations also changed because of his massive fiscal spending plan (i.e. building roads etc.). It will contribute $5.3 trillion to the national debt. However, it will boost the economic growth and will increase the supply of bonds issued. Thus, the investors expect the upcoming inflation is possible to happen and the increase in short-term interest rates will be the result. The government usually pays lots of attention on the inflation control. If it is out o...
... middle of paper ...
...he price level will just drop to the normal level.
Moreover, as there is a rise in the expected inflation, the investors now requires higher yields in order to compensate the risk that the rate of inflation could surpass their return on the bond. Otherwise, they would like to spend their money on some risker opportunity that could bring higher returns. As it reveals in the beginning of the article, they conspire to raise the Treasury bond yields and conspire to decrease the bond price as a result. However, the higher yields in the bond market make those who have holden the bond previously a loss in value of bond.
The current bond yields of 2.2 %( 10-year Treasury bond) is relatively low. It is only because Trump’s plans on fiscals spending have been not implemented yet. There need more details to consolidate the growth. In general, the economic growth should be firm.
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