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Stocks soared on news of Trump's election. Bonds sank. Here's why.
As Donald Trump emerged victorious in the presidential election Wednesday, stock prices soared.
As the stock market rose, the bond market fell.
Stocks roared to record highs Wednesday in the wake of news of Trump’s triumph, signaling an end to the uncertainty of the election cycle and, perhaps, a vote of confidence in his plans for the national economy, some economists said.
On the same day, the yield on 10-year Treasury bonds rose to 4.479%, a four-month high. A higher bond yield means a declining bond market: Bond prices fall as yields rise.
While stock traders rejoiced, bond traders voiced unease with Trump’s fiscal plans.
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Trump campaigned on a promise to keep taxes low. He also proposed sweeping tariffs on imported goods.
Economists predict a widening deficit in Trump presidency
Economists warn that Trump’s plans to preserve and extend tax cuts will widen the federal budget deficit, which stands at $1.8 trillion. Tariffs, meanwhile, could reignite inflation, which the Federal Reserve has battled to cool.
For bond investors, those worries translate to rising yields. The yield is the interest rate, the amount investors expect to receive in exchange for lending money: in this case, to the federal government.
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