U.S. Treasury Rates Rise Ahead of Trump's inauguration... "Expects Up to 5% Annually"

As U.S. President-elect Donald Trump's inauguration approaches, U.S. government bond rates, which have been steadily rising recently, are on the rise.

In the U.S. bond market, interest rates on 10-year government bonds have risen by about 0.5 percentage points over the past month, approaching 4.7% per annum, the highest level in more than eight months since late April last year, according to Bloomberg News.

Corporate bond issuance has surged this week and a $119 billion U.S. government bond auction is also scheduled, adding to pressure on interest rates to rise.

In addition, government borrowing is expected to increase when Trump takes office on the 20th.

Reflecting this atmosphere, an option trade on the Chicago Mercantile Exchange (CME) on the 7th local time predicted that interest rates on 10-year government bonds will hit 5% annually by the end of next month.

They expect interest rates to rise to levels not seen since October 2023.

The outlook for the future is higher.

Padraik Gavi, head of global interest rate strategy at ING, believes the 10-year U.S. Treasury rate will be around 5.5% later this year.

Trowwe Price's Arif Husain forecast it could rise as much as 6%.

The prospect that inflation will rise again and the fiscal deficit will also accelerate when Trump takes office is leading to a rise in government bond rates.

"The market needs confidence in fiscal policy, and we expect more information when Trump takes office," said Gargi Shoduri, chief investment portfolio strategist at BlackRock. "Investors are reluctant to buy now because it is uncertain how many government bonds will be issued."

Employment and service indicators released on the 7th also showed strong performance, lowering expectations for a further rate cut by the U.S. central bank's Federal Reserve (Fed) in the second half of this year.

This put upward pressure on government bond rates, and the U.S. government's $39 billion 10-year government bond auction on the same day saw interest rates sell at 4.68%.

This is the highest level in 18 years since 2007.

"These employment and service sector indicators support the market's view that the U.S. economy is currently strong and interest rates are not constrained," said Tracy Chen, portfolio manager at Brandywine Global Investment Management.

Some investors believe that interest rate trends may change as the year changes.

A recent customer survey by JPMorgan Chase found that while short positions (sell) that expect bond prices to fall (=bond interest rates to rise) have also increased over the past week, long positions that forecast bond prices to rise have also increased by the most in more than a year.