The US President’s promise of a national cash payout for a Republican Party mid-term election victory is injecting fresh uncertainties into the Treasury market ahead of a 30-year bond auction, renewing concerns about Washington’s fiscal discipline and erratic policymaking.
Treasuries fell on Thursday, underperforming European bonds, after Donald Trump pledged to give all adult US citizens a $5,000 dividend if Republicans retain control of both houses of Congress. The yield on 30-year notes was up two basis points to 5.31%.
While the president offered no details and the proposal is unlikely to become law, his comments come at a time when 30-year yields are already near the highest since the global financial crisis. US bonds fell on Wednesday after Treasury Secretary Scott Bessent’s plan to buy up to $6 billion of longer-dated debt disappointed some investors who had expected a larger increase.
All eyes are now on Thursday’s $22 billion sale of Treasuries maturing in 2056 and the release of US producer price index, as well as a key inflation reading later in the week.
“I’m not saying this alone would trigger a massive selloff in Treasuries, but it does raise one question: what does the Trump administration as a whole actually want to achieve?,” said Kiyoshi Ishigane, executive chief fund manager at Mitsubishi UFJ Asset Management Co. “When Bessent is trying so hard to keep yields down, saying something like this would be contradictory.”
The Treasury market has come under pressure in recent weeks as fresh tensions in the Middle East pushed oil prices higher, fueling bets that the Federal Reserve may need to raise interest rates again. Also weighing on US bonds are unabated worries over the fiscal health of the world’s largest economy, now that total US public debt has surpassed $40 trillion for the first time.
“This policy makes the mid-term elections outcome even more binary when it comes to how investors assess US Treasuries,” said Eugene Leow, senior rates strategist at DBS Bank Ltd. “In the event that the Republicans manage to retain both houses, fiscal concerns would probably balloon.”
This article was provided by Bloomberg News.