Bond ETFs Plunge After Trump Win

In a day filled with green in financial markets, bonds were one big red spot.

Exchange-traded funds tied to the asset class were hammered on Wednesday as investors digested Trump’s resounding victory in the 2024 presidential election.

The iShares 20+ Year Treasury Bond ETF (TLT) tumbled 2.5% on the session as the 30-year Treasury bond yield jumped as much as 24 basis points to 4.68%, while the iShares 7-10 Year Treasury Bond ETF (IEF) was lower by 0.9% on the back of a 21- basis point gain in the 10-year Treasury bond yield to 4.48%.

While Trump’s big win stunned some, investors in bond markets were less surprised by his victory.

Over the past several weeks, bond yields were correlated with Trump’s election odds. When he seemed likelier to win, yields rose (and vice versa).

Economists generally see Trump’s policies as putting upward pressure on consumer prices and deficits.

Trump has pledged to cut personal and corporate income taxes, while raising tariffs aggressively.

Bond Yields and the National Debt

The Committee for a Responsible Federal Budget projects that Trump’s economic policies would increase the national debt by $7.75 trillion though 2035.

Attention will now turn to the Federal Reserve’s monetary policy decision on Thursday. The U.S. central bank is expected to slash its federal funds rate by 25 basis points and may offer clues on where the rate will head from here.

If the Fed signals a slower pace of rate cuts, that may give the greenlight for bond yields to keep rising—potentially up to their 2024 highs. 

The 10-year yield is just 30 basis points below its high for the year, while the 30-year yield is roughly 20 basis points below its high. 

Yields reached their lows for the year in September, just two days before the Fed cut the federal funds rate by 50 basis points.

Since then, it’s been straight up for bond yields, with the 10-year and 30-year rising around 80 basis points and 70 basis points, respectively.