Jim Bianco has some interesting charts and a corresponding explanation for the surge in 10-year Treasury yields. 
Bianco has a Series of Charts comparing Polymarket betting odds to bond yields, the stock market, Bitcoin, and other things.
In August the election betting market and the bond market were negatively correlated, and very strongly so.
Now they seem strongly correlated in a positive sense.
Bianco says “Arguably, the most significant impact is on the bond market. The higher Trump betting goes, the higher 10-year yields go. Trump will stimulate growth (cutting taxes and regulation) and potentially create more inflation (tariffs).”
I agree with Bianco that Trump will stimulate more inflation if he carries out his tariff plan. But is that what’s suddenly driving the market?
My answer is no.
Economic Charts vs Bond Market Yields
I used Nate Silver’s election odds instead of Polymarket, but the key point is economic reports correspond to three consecutive yield surges to the day.
On September 18, when it was touch-and-go, the Fed cut by 50 basis points. Long-term yields did what I expected on that move.
On Oct 1 (no news) Trump’s odds were 44.7 percent. The odds dropped a tiny bit to 43.6 percent on Friday, October 4. That’s when we got a much hotter than expected jobs report. Yields surged on the jobs report.
Between October 11 and October 16 bond yields fell by 14 basis points as Trump’s odds rose from 47.7 percent to 49.4 percent.
On October 11, Polymarket had Trump’s odds as 54-46. On October 16 it was 59-41 with bond yields dropping 14 basis points. So both Polymarket and Nate Silver’s odds were negatively correlated for 5 days.
It is not until the October 21 surge where I struggle to find a same-day news explanation that matched rising yields. However, there are many possible economic explanations including runaway budgets no matter who wins the elections.
In short, I agree with Bianco’s inflationary tariff thesis but the surge in bond yields has a direct, same-day correlation to three key economic reports.
Spotlight Trade Policy
September 26: Trump Claims Tariffs Will Reduce the Trade Deficit. Let’s Fact Check.
October 5, Buy American Provisions Cost $125,000 Per Job Created
October 20: Trump Disavows His Own “Best in History” USMCA Trade Deal
Betting Odds
October 27: I Challenge Nate Silver to an Election Bet, Winnings Go to Charity
I believe Silver has overrated the odds of a Harris win, especially her odds of a clean sweep in the battleground states.
Click above to see my bet proposal.
Supply and demand market forces are causing increased interest rates for long term debt. “Smart” investors are exiting the equity market prior to the 5 Nov crash and buying short term treasuries. The purchase demand for ten year notes is considerably less than short term debt requiring higher yields to sell those debt instruments. The 3 month minus ten year yield, which has been inverted for an historical 2 + years, has narrowed to -0.42 on 28 Oct. That value will be positive on 5 November. The global asset debt macroeconomic system and its global composite equity daily, weekly and monthly valuations are self ordering and have essentially nothing to do with the political election outcomes and everything to do with bad debt load relative to overvaluation of (equity, commodity, and crypto) assets and to declining jobs at the bottom of the pyramid to support further system debt expansion. A great transfer of wealth will occur on election day that this site will likely wrongly ascribe to election outcome jitters.
Long term rates are rising because the Fed is buying short term and selling long term. The QE initiated during the Covid recession involved buying millions of long term bonds and mbs. They financed them with short term debt. When they raised rates, the inverted curve on rates caused massive losses as the income from the long term debt was less the payout on the short term bills. The Fed is losing millions and needs to convert its long term debt holding to shorter maturities to stem the losses.
The Fed has been selling bonds in QT for years. So try again.
Yields jumped same-day three times in a row on strong data.
Goes against the consequences of a Trump election.
He has vowed to bring down energy costs. That is a goodly part of what is driving inflation, commodity inflation is vested in high cost of energy used to produce them.
His goal 50% lower within first year of new administration will go a long way towards alleviating production, transportation, food inflationary pressure and productivity.
Especially productivity where substituting energy for Labor will increase efficiency of those who work.
Getting these things under control would dampen the push pull effects currently driving Labor higher.
Bond Market is still reacting to what has gone before in these prior three one half years.
Fed government has enormous ongoing funding requirements and that takes higher rates to find buyers.
Guess I need add the efficiency cabinet level review of Federal Government regulations
which will take the Boot off neck of productive people.
Ruffled some feathers I did, but listened to Musk speech at Madison Square Garden. Visionary Hopeful presentation.
The ten year yield is saying “The 50 bps cut in September was a POLICY ERROR”.
Yes. Simply put, nobody believes government is serious about solving inflation, so yields are headed upward. If they want to change that perception they need to show it by their actions.
The Fed said they’d “look through” inflation and cut rates. The market is now saying it will “look through” cuts and demand higher yields on the long end.
Rising inflation expectations do not fully explain the rise in Treasury yields (details below).
Rates may also be rising because:
Anxiety about default risks doesn’t seem to be a source, though. Spreads are very low.
Taxation risk might be a thing.
If in fact the Bond Vigilantes have returned, it would be a good thing; the government needs fiscal discipline restored.
——————————————-
Why “Inflation Expectations” is part of, but not all of the answer:
The 5- and 10-year TIPS-implied inflation rate, the “breakeven” relative to Treasuries, has returned to 2.3% after dipping to 1.9-2% in August and September. (FRED series T5YIE, T10YIE, T30YIEM)
That explains some but not all of the 10-year yield rising.
The TIPS real yield has also risen, from 1.5% to 2.0% over the past month. But not yet back to the recent high of 2.5%.
Bond markets are surging, in part, because the tail was wagging the dog over the summer and now sanity is coming back into view. All that’s needed now is a good 1,500 point sell off to get us started on a 10-15% downside.
I agree a Trump election will mean higher yields, but so would Harris.
It seems Russia prefers Trump.
Iran prefers Harris.
And China, somebody knows who prefer the Tik Tok’s manager?
Trump & Biden impose Sanctions on Putin and Iran. Annalena Baerbock imposed
tariffs on China and called Xi a “dictator”. The EU might ratify Annalena position in Nov. Lincoln imposed income tax in 1861. When the gov cut income taxes they impose tariff to fill the coffer.
TNX closed July 24/25 gap. If the Fed stays the course it will drag TNX down < the CPI. Negative rates will ease gov debt payments.
Negative rates will send gold and silver to the moon.
Sounds good to me
CL to the moon.
MMMFs are nonbanks not banks. Including them in the money stock is an error. So, the draining of O/N RRPs funded the bond market. Now with 90 percent gone, there is no longer support for “1 trillion dollars of debt in 100 days”.
I.e., O/N RRPs are not a liability swap.
Strongly disagree. From a consumer point of view, as rates have risen off the zero bound, millions of people have shifted trillions of dollars in savings from bank accounts to MMFs. There’s no difference in spending power if I pay my credit card bill with money withdrawn from my MMF vs. my savings account.
From a plumbing point of view, there might be back-end differences, but since the Federal Reserve provides any needed funds to both the MMF and the bank companies in much the same way, there’s no practical difference.
Election is perhaps a minor influence buy I think mish is right that it is not much.
I do not like either candidate. My dream outcome is that what ever party wins the white house the opposite party will control at least one half of congress and will stop the crazy vote buying ideas of both pres candidates.
Yields are looking bullish. Gold way up, copper oil down. Disturbing
Not so much if you are heavy bullion
I don’t think that anybody can claim to be able to avoid high interest rates when the government is borrowing trillions. Bond buyers must look ahead decades and they realize that the government will be printing fiat money to pay the annual interest of more than a trillion dollars per annum. Neither the reparations lady nor the tariff guy have proposed to get serious about stopping the deficit spending. Bond buyers are dumb, but they’re not that dumb.
A simple question here for anyone to ask is, do we really believe inflation is going to average less than 4-something per cent in the next decade? I doubt it at the rate things are going. Only durable goods and energy deflating made the inflation look as if it is headed downward. In fact services inflation remains red hot, well above the 10 year yield right now.
Polymarkets reflects the desires of the Russians for Trump to win not the desires of the American people.
Do you not understand that Americans are not allowed to participate in Polymarkets?
Do you understand Trump fanboy Peter Thiel is heavily involved in Polymarkets?
Thats funny. All of the other markets have similar odds as well and they aren’t foreign. Sorry Greg
Also Greg, show me on the doll where the Russians touched you?
Hmm… How is it that a U.S. Citizen, Peter Thiel, is “heavily involved” in Polymarkets, if “Americans are not allowed to participate”?
I don’t think the bond market worries about “inflationary tariffs” (even though they are doctrinaire globalist free trade zealots). I think they are worried that Trump extending the existing individual (personal) federal tax rates while promising “no tax on this, that and the thing” (tips, police pay, etc.) will make the deficit skyrocket despite any modest growth in GDP. And they’re right. I’ll still vote for him mainly because the Biden (and presumably Harris) foreign policy team is the most incompetent and amateurish one we’ve ever had, leading us inexorably into WWIII.
How do tariffs increase inflation if inflation is defined as an increase in the supply of money and credit?
OMG
The same way dogs would disappear from the face of the Earth if you defined dogs as cats
We are obviously discussing the widespread view of inflation.
You assign entirely too much importance to trump and his gang of angry fools.
And this is why you will lose. Nothing but name-calling. Nothing about why you support her. Just anger and hate. The left has become everything they rail against. I’ll pray for you.
When you’re a fool, people tend to call you that.
Come to the party of hope and love, the Republicans. You can do it. Leave your hate behind. I can only imagine how unhealthy you are based on your posts. Joy exists sir. We are the big tent.
The party that wants to set the army on anybody that disagrees with it?
The party that cuts taxes on the rich and raises them on everyone else?
The party that slobbers all over a fool that bankrupted multiple casinos and ran up the largest deficit in US history?
The party that wants to force their religion on everyone?
The party that’s the favorite of nazis and racists?
The party that wants a grifting moron as it’s supreme fascist leader?
Golly gosh, where do I sign up?
Unless you’re the fool wearing rose colored glasses.
Go look in the mirror, Phil.
All US citizens should read the entirety of RFK’s resignation speech.
https://im1776.com/2024/08/24/rfk-address-to-the-nation/
This will explain a lot of what is going on here.
100% agree. RFK provided a most excellent critique.
a lot more going on globally
to much fiat debt is real problem
then throw in spendthrift grifters we call CONgress
Mish, question:
Aren’t tarrifs a good idea in our current economic setup?
We no longer have a manufacturing base. We had a big one before WW2 and a massive one after. Now it’s all outsourced, which is not good for us if we to have an emergency like a major world war and we needed to ramp up production.
Wouldn’t tarrifs force manufacturing back to the US, and hurt China in the process?
Yes. But tariffs contradict libertarian economic theory. See, libertarians can blame taxes, regulations and high production costs for driving production overseas. But for some reason, reversing the costs won’t revert the production back to domestic producers.
For years, libertarians have advocated open borders. Now that the results of the experiment are in, even the Mises Institute has articles admitting it’s a problem. One of their solutions is to raise the costs to immigrants by denying taxpayer funded services such as public schooling to illegal immigrants. While a perfectly reasonable action, why not apply that reasoning to international trade?
Libertarians have consistently pointed out that open borders and free benefits are incompatible. This is not a new thing.
Hasn’t worked that way has it?
I even posted a chart.
And what happens if China in response halts all rare earth element exports?
Here’s the chart:
https://mishtalk.com/economics/trump-claims-tariffs-will-reduce-the-trade-deficit-lets-fact-check/
Recall that Biden kept all of Trump’s tariffs.
Next think something like steel. We forced more production here. All US users of steel (think cars, washing machines etc
instantly had to pay a higher price making those products less competitive.
America would be forced to mine most of those metal domestically.
Be that as it may, I could definitely see the US & China squaring off over REM in about 10-15 years.
MosDef
If Kamala wins, breakneck spending on illegals, debt forgiveness, green initiatives, and wars will continue. If Trump wins, IRS receipts will plummet with tax cuts for corporations, social security recipients, tip workers, and military/emergency responders. So our choices are continued insane spending or slashing IRS’s income. Either way, the federal deficit and national debt are screwed. It’s too bad there’s no fiscally conservative candidate.
Tariffs can replace or supplement income taxes
Only Congree can change the tax laws. There will be other forces in play besides Trump’s wish list.
I don’t think Trump and the GOP will cut the corporate tax rate (21%). They’ll leave it alone. Harris and the Dems would raise it (which is really dumb).
Trump can only cut taxes if there is a clean sweep. Even then it’s iffy depending on the makeup of the senate and house.
And there’s a limit to what he can do with tariffs. Will he implement tariffs? Yes. Will they be as big as he’s proposing? No, of course not. Where they land is anyone’s guess.
The point is like what you’ve stated before. Not that you agree with tariffs, but if they are implemented on a wide scale, the result has to be that we start manufacturing more strategic goods.
Pharma would be a great start, even if a lot of it is friendly shored.
IRS receipts have grown when their are tax cuts. Look it up.
Inflation does wonders for making things go up. Tax revenues as share of GDP are not up.
I really dont think he will be able to implent those insane ideas. Mostly populist election BS
Not sure why my vanilla post just got censored.
Not sure about the surge in yields but the surge of people at Madison Square Garden yesterday is certainly a sign of Trump’s improving election odds.
That place was nuts! Where else but a Trump rally do you get to see an African American man(Elon) introduce an immigrant woman(Melania), who in turn introduces the President of the United States.
The empty seats were going wild!
because they didnt want the place to look full…….They were lots or pro trump people on the streets.
First time I heard of a Nazi rally when Jews where participating. Excluding George Soros
If the rise in rates is a so-called Trump trade or any of the other excuses proffered here, then why is it a global phenomenon? Could it be that the lenders are balking at the idea of unlimited debt creation and are beginning to demand higher interest to mitigate risk?
Because Trump is a global phenomenon.
Much like herpes.
Trump 64%/Harris 39% in latest London betting (Polymarket modern proxy), which has called every election since 1866 but two: Truman beat Dewey in 1948 and Trump beat Hillary in 2016, where she was up 9 points in every major poll on today’s date, 2016. Just one reason why no educated person pays any attention to polls whatsoever.
In reply to spotlight on trade policy:
For those who would like to read about a case for replacing income tax with tariffs from one of the world’s greatest economists, search for
“THE UNEASY CASE FOR DEGRESSIVE TAXATION: A CRITIQUE OF BLUM AND KALVEN” (1952) by MURRAY N. ROTHBARD
P.S.
There’s a free pdf on mises.org
It’s a timeless Chicago vs Austrian school of economics critic of an essay written by two mainstream economists at that time.
U.S. stocks could soon trade for almost 24 hours a dayhttps://qz.com/nyse-arca-new-york-stock-exchange-etfs-trading-hours-1851681487
Bond yields increased because the Fed’s political cut in interest rates stimulates hyper inflation.
Only a fresh round of QE will drive bond yields lower. It’s coming right up.
my off-the-cuff guess is that bond yields are rising because the full faith and credit of the USA is falling. And its gonna get worse.
The dollar is backed by the full faith and credit of Joe and Hunter Biden. Trust them.
But what about….. BENGHAZI!!!!!
Yields have had a tendency to crest around the government spending inflated gdp reports over the course of the last 3-6 reports. Somehow 1.6 was revised to almost double in Q2 to 3.0. And Q3 2024 is running according to Atlanta GDPNow at 3.3% I believe. GDP comes out on Wednesday
Like most things, the rise in yields is a result of multiple factors, but over the long term long yields will correlate with growth and inflation combined (nominal growth). Right now that is 3% growth with 2.7% or so inflation depending which one you look at. Thats 5.7% nominalish. (!?!?!?!)
So 4.2% 10s are really telling you that yes we see these numbers but we regard them as BS, and growth certainly and inflation possibly will come down.
The trend in output has been down down down. I doubt real output potential is higher than 1.5%, probably lower. And growth or not in inflation will depend on how much money Congress, with the help of the Fed, creates going forward.
Rising yields indicate capital is flowing to equities as it is increasingly obvious there is no recession in months ahead.
Bingo.
The bond market is sniffing out the fact that the Fed is stoking inflation again and made a mistake in September.
That is what I pointed out in my first economic highlight. Fed cut 50 basis points and long-term yields went the way I expected.