The highest 30-year US Treasury yield in nearly half a year managed to attract buyers on Monday. This development played a crucial role in buoying bonds as investors carefully evaluated how Donald Trump's presidential win would influence the economy and the Federal Reserve's policy.

Unraveling the Effects of Trump's Victory on Treasury Markets

Monday's Bond Market Activity

Most Read from Bloomberg showed that yields on the longest-dated bonds were hovering near 4.59% in New York afternoon trading. They had climbed as much as six basis points to reach 4.68%, which was the highest level since late May. The flows that contributed to this retreat included futures block trades. Additionally, sales of new corporate bonds were anticipated to bring about supportive hedging flows.This price action resembled what occurred on Friday. A batch of strong economic data raised further doubts about whether the Fed would cut interest rates again in the following month. As a result, the yield on 10-year Treasuries briefly reached 4.5%. Shortly after, a large block trade in 10-year note futures indicated that this level was appealing to at least one trader.

Credit Supply and Hedge-Related Flows

On Monday, nine companies were selling new high-grade corporate bonds. This marked the start of what was expected to be the final big week for credit supply until December. Such activities can lead to hedge-related flows in the Treasury and interest-rate swap markets. Four of the offerings included 30-year tranches.

Uncertainty over US Treasury Secretary

The uncertainty surrounding Trump's pick for US Treasury secretary is exerting pressure on the market. Bonds have been on a downward trend for a significant portion of the past two months. Stronger-than-expected economic data prompted traders to scale back their expectations for Fed rate cuts. This selloff has been further extended since the November 5 election. Trump's victory heightened concerns about how his promises of steeper tariffs, lower taxes, and looser regulations would impact interest rates.Interest-rate swaps indicated that traders believed there was almost an equal chance for the Fed to maintain its current stance or cut rates by another quarter-point at the policy meeting ending on December 18. Investors expected the central bank's key borrowing costs to decline to around 3.8% by the end of next year, which is approximately 75 basis points below the current level. Fed Chair Jerome Powell stated last week that the central bank was not "in a hurry" to lower interest rates.The Bloomberg index of Treasury returns saw its year-to-date return shrink to about 0.7% as of Friday's close. This was a significant drop from the peak of 4.6% on September 17, which was the day before the Fed reduced borrowing costs for the first time since 2020."There is a general recognition that growth is robust, inflation is not completely eradicated, budget deficits are likely to widen, and there is little justification for the long end to decline," said Michael Contopoulos, the head of fixed-income at Richard Bernstein Advisors LLC.–With assistance from Edward Bolingbroke.(Updates changes in yield levels throughout.)Most Read from Bloomberg Businessweek©2024 Bloomberg L.P.