(Bloomberg) -- The Treasuries selloff deepened Monday sending long-term bond yields to the highest in almost six months as investors continue to digest how Donald Trump’s victory of the presidential election may affect the economy and the Federal Reserve’s policy.
Yields on 30-year bonds rose as much as 6 basis points to 4.68%, a level last seen at the end of May. The 10-year rose about 3 basis points to 4.47%, following similar rises in yields across Europe. Bond supply is also pushing yields higher, Morgan Stanley announced a 31-year offering bond offering, and a swath of other corporate borrowers are expected to sell investment-grade bonds Monday.
“The economy is doing better, Trump is pro-growth, and the bond selloff has some momentum,” said Jack McIntyre, a fund manager at Brandywine Global.
Additionally, the uncertainty over Trump’s pick for US Treasury secretary is putting pressure on the market. The rise in the 10-year is “a worrying sign,” Kyle Bass, founder of Hayman Capital Management, said on Bloomberg Television Monday.
Bonds have been declining for the past two months as stronger-than-expected economic data prompted traders to rein in expectations of Fed interest-rate cuts. The selloff has extended since the Nov. 5 election when Trump’s win heightened concerns over how the president-elect’s promises of steeper tariffs, lower taxes and looser regulations will impact rates.
Interest-rate swaps showed that traders see there’s almost an equal chance for the Fed to stay put or cut rates by another quarter-point at a policy meeting on Dec. 18. Investors expect the central bank’s key borrowing costs to fall to about 3.8% by the end of next year, or about 75 basis points below the current level. Fed Chair Jerome Powell said last week that the central bank isn’t “in a hurry” to lower interest rates.
In similar price action to Friday, early weakness in Treasuries has attracted buying as yields move back to largely unchanged from front-end to belly of the curve. Flows over the US morning session have included a block buy in the front-end of the curve, fading the early selloff.
The two-month bond slump has all but wiped out this year’s Treasuries gain. The Bloomberg index of Treasury returns saw its year-to-date return shrink to about 0.7% as of Friday’s close, from a peak of 4.6% on Sept. 17, the day before the Fed reduced borrowing costs for the first time since 2020.
“There is a general acknowledgment that growth is strong, inflation is not completely slayed, that budget deficits likely widen and that there is little reason for the long end to go down,” said Michael Contopoulos, head of fixed-income at Richard Bernstein Advisors LLC.
--With assistance from Edward Bolingbroke and Elizabeth Stanton.
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