China inflation lands amid global bond turmoil

China’s latest inflation figures are out on Thursday, and they could not be coming at a more fascinating – some might say alarming – time for global bond markets.

Long-term yields around the world are shooting higher as investors bet that sticky inflation will force the US Federal Reserve and other central banks to dial down or even halt their rate-cutting cycles.

The 30-year UK gilt yield is the highest since 1998, the 30-year US Treasury yield is a whisker from 5%, and the US ‘term premium’ – the risk premium investors demand for lending long to Uncle Sam rather than rolling over shorter-term debt – is the highest in a decade.

If this is a reflection of investors’ fears that the inflation genie has not been put back in the bottle and central banks are losing control over the long end of the bond curve, policymakers should be worried.

Fed Governor Christopher Waller seems relatively relaxed though, saying on Wednesday he still thinks inflation will fall toward the Fed’s 2% target, allowing for further rate cuts. But minutes of the Fed’s policy meeting last month showed policymakers are wary, particularly around the impact of policies expected from the incoming Trump administration.

Money markets are pricing in only 40 basis points of Fed easing this year, and the year-on-year oil price rise is the highest in six months. Investors’ inflation fears are bubbling up.

The global outlier is China, where policymakers are fighting deflation. As Jim Bianco at Bianco Research points out, it is the only major bond market in the world where yields are falling.

Annual producer inflation has been negative every month since October 2022, indicating that price pressures across the economy remain deflationary. Annual consumer inflation is close to zero, and hasn’t been above 1% for nearly two years.

China’s producer and consumer price inflation figures for December will be released on Thursday. According to the consensus forecasts in Reuters polls, economists expect annual PPI inflation shifted slightly to -2.4% from -2.5% in November, while annual CPI inflation cooled to just 0.1% from 0.2%.

This is the context in which Chinese bond yields are tumbling to their lowest-ever levels. The 30-year yield is already below the 30-year Japanese Government Bond yield, and the 10-year yield is now less than 50 basis points away from going below its 10-year JGB equivalent.

HSBC analysts on Wednesday slashed their year-end 10-year Chinese yield forecast to 1.2% from 1.8%.

The yuan remains under heavy selling pressure and on Wednesday slipped to a fresh 16-month low. It is now poised to break the September 2023 low of 7.35 per dollar, a move that will take it to levels last seen in 2007.

Here are key developments that could provide more direction to markets on Thursday:

– China PPI, CPI inflation (December)

– Australia retail sales (November)

– Taiwan, Australia, Philippines trade (December)

(Reporting by Jamie McGeever; Editing by Bill Berkrot)

US yields rise on strong data amid supply

NEW YORK – Benchmark 10-year Treasury yields hit an eight-month high on Tuesday after better-than-expected data pointed to a strong economy and as the Treasury auctioned USD 39 billion of the notes to average demand.

US job openings in November grew to 8.098 million, exceeding forecasts for a 7.7 million rise, and higher than October’s numbers of 7.839 million.

US services sector activity also accelerated in December, while a surge in a measure of prices paid for inputs to near a two-year high pointed to elevated inflation.

“It’s giving the impression that the economy is re-accelerating,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

Goldberg said positive seasonality could be helping the data appear stronger than it is. “But optically speaking, that’s what’s really driving Treasuries here – that expectation that maybe things are actually getting a lot better,” he said.

Friday’s employment report for December will next be watched for clues on the strength of the labor market. It is expected to show that employers added 160,000 jobs during the month.

Interest rate-sensitive two-year note yields were last up 2.7 basis points on the day at 4.297%.

Benchmark 10-year yields rose 7.1 basis points to 4.687% and peaked at 4.699%, the highest since April 26.

The yield curve between two-year and 10-year notes steepened four basis points to 39.3 basis points, the steepest since May 2022.

Thirty-year Treasury yields rose 7.5 basis points to 4.913% and reached 4.926%, the highest since Nov. 2023.

The Treasury saw okay interest for its 10-year auction, which may have been helped by Tuesday’s sharp rise in yields.

The debt sold at high yield of 4.680%, close to where it had traded before the sale. Demand was 2.53 times the amount of debt on offer.

The US government saw soft demand for a USD 58 billion sale of three-year notes on Monday and will also sell USD 22 billion in 30-year bonds on Wednesday.

Heavy corporate debt issuance is also seen weighing on the market this week.

Treasury yields have increased despite the Federal Reserve cutting interest rates by 100 basis points since September. The US central bank is expected to be more cautious in making further rate reductions this year as long as inflation stays above the Fed’s 2% annual target.

“The market is really pricing for a higher terminal rate…right around 4% is where we’re at right now and that’s only 25 basis points from where the funds rate is now,” said Dan Mulholland, head of rates – trading and sales at Crews & Associates in New York.

Analysts expect policies, including tax cuts and looser business regulations introduced by Trump and the Republican-led Congress, will boost growth, while others, including a clampdown on illegal immigration and tariffs, could add to inflation.

Concerns over the longer-term fiscal trajectory are also leading longer-term US Treasury yields higher, with the US budget deficit expected to continue to worsen.

“The market is building more term premium into the long end to account for the fiscal situation, the deficit, and potentially a lot more issuance in the long end of the curve,” Mulholland said.

(Reporting by Karen Brettell; Editing by Jan Harvey, Barbara Lewis, and Nick Zieminski)

Fitch warns of US debt-ceiling stalemate despite Republican-controlled government

NEW YORK – A unified government under President-elect Donald Trump is unlikely to lead to a quick resolution of the US debt-ceiling debate given a narrow Republican House majority and continued disagreements within the party on spending policies, said ratings agency Fitch.

As part of a 2023 budget agreement, Congress temporarily lifted the debt ceiling until Jan. 1, 2025. While the US Treasury can continue covering its obligations for several more months, Congress must revisit the issue this year to avoid a debt default.

Fitch, which downgraded the US government credit profile in 2023 after a debt-ceiling crisis, said on Tuesday it was skeptical that a debt-limit suspension or increase, as well as other key fiscal policy decisions expected this year, will be implemented quickly.

“The US faces significant fiscal policy challenges in 2025 … We believe it is unlikely that these will be resolved expeditiously because of long-standing weaknesses in the federal government’s budgetary process and a narrow Republican House majority,” it said in a statement.

Hopes that one-party control of government could make it easier to agree on raising the debt ceiling were dented last month when Congress passed spending legislation in a down-to-the-wire vote that averted a destabilizing government shutdown. Several Republicans rejected Trump’s demand to use the bill to lift the nation’s debt ceiling.

The last-minute resolution was consistent with the ratings agency’s expectations that Congress would rely on temporary funding measures, and demonstrated “the potential obstacles to securing agreements on fiscal measures, both within Congress and between Congress and the President,” Fitch said.

The cost of insuring exposure to US government debt has started to climb this week, with spreads on US six-month and one-year credit default swaps – market-based gauges of the risk of default – widening by three and four basis points, respectively, compared to last week, S&P Global Market Intelligence data showed on Tuesday.

The 2023 debt-ceiling showdown spurred a selloff in stocks and bonds, pushed the US to the brink of default, and hurt the country’s credit rating.

Fitch said it expects US policymakers to eventually reach an agreement on the debt ceiling as well as on other key fiscal policy items, such as the extension of 2017 tax cuts set to expire this year.

But a still-challenging political environment means decisions are likely to be reached on an issue-by-issue basis, it said, “underscoring the US’ deterioration in governance on fiscal matters over recent years.”

(Reporting by Davide Barbuscia; Editing by Rod Nickel)

Trump trade uncertainty exposes stretched markets to volatility shocks: McGeever

ORLANDO, Florida – US financial markets last year were more sensitive to economic surprises than usual, and as Donald Trump prepares to begin his second term as US president investors should buckle up for more of the same in 2025.

Especially in Treasuries.

The 10-year yield’s sensitivity to inflation and activity data surprises last year was the highest in more than 20 years, according to Goldman Sachs. Although inflation has fallen, growth fears have ebbed, and the Federal Reserve has started cutting interest rates, these sensitivities persist.

Again, especially in Treasuries.

While equities’ sensitivity to inflation surprises has fallen as price pressures have cooled, it remains high by historical standards. And stocks’ sensitivity to growth surprises, though still modest, has begun to tick up to near pandemic-era levels.

What does this mean for the coming year? While benchmark gauges of implied equity and bond volatility are muted, markets are in a more tenuous position than they were a year ago. By many measures, such as pricing, sentiment and valuations, they are extremely stretched.

US stocks have never been riding higher or represented a bigger share of the global market cap, and the Fed’s 100 basis points of interest rate cuts since September have been met with a counterintuitive 100-basis-point rise in the 10-year Treasury yield.

Does this mean America’s key markets are primed for correction? Maybe. But what’s easier to say with confidence is that we’re going to see wider intra-day trading ranges and short-term reversals as investors contend with the biggest wild card of all: Trump’s agenda.

‘VOLATILITY MAN’

History shows there is a “solid” relationship between macro and market volatility, as Citi’s Stuart Kaiser points out. And with the world still in the dark as to how Trump’s trade and tariff policies will pan out and how the Fed will respond, macro uncertainty is alive and well.

Indeed, the two biggest “tail risks” for world markets cited in Bank of America’s latest fund manager survey were “global trade war triggers recession” and “inflation causes Fed to hike.” Both captured 37% of respondents’ votes, significantly more than the 10% garnered by “geopolitical conflict,” the third most-cited risk.

“With numerous large policy shifts on the horizon, markets should be prepared for a lot more volatility ahead,” Deutsche Bank’s George Saravelos said on Monday.

It is true that the initial year of Trump’s first term, 2017, turned out to be a good one for Wall Street, as the S&P 500 index rose 19%, despite Trump’s unpredictable actions. But that was a period of low inflation, low interest rates, and solid growth. Such low macro volatility is unlikely to be replicated this time. And given the stretched nature of today’s markets, even modest economic surprises could spark big moves.

Just look at the sharp swings in US stocks and the dollar on Monday in response to a media report – later dismissed by Trump – implying that his proposed tariff regime would be less severe than feared.

But even if macro “vol” does increase, will it be enough to puncture the generally bullish 2025 market consensus? Perhaps not, suggests Phil Suttle, a Washington-based economist. “(Markets) will be quite volatile but without much significant net direction, as the perceived odds of these different (tariff) scenarios oscillate,” Suttle wrote on Monday in a note titled “Volatility Man.”

It is also possible that investors will increasingly ignore Trump’s social media posts on markets, economic policy, or the Fed, as they eventually did in his first term, especially if real-world economic indicators remain stable. But it’s far too early for that right now.

Given the combination of stretched markets and an unpredictable commander-in-chief, markets will feature a lot of sound and fury in 2025. It could be a bumpy ride.

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever; Editing by Paul Simao)

Wall Street ends lower as inflation fears mount

US stocks tumbled on Tuesday after a batch of upbeat economic data raised concerns that an inflation rebound could slow down the Federal Reserve’s pace of monetary policy easing.

Stocks gave up early gains after a Labor Department report showed job openings unexpectedly increased in November, while a separate report said services sector activity accelerated in December with a measure tracking input prices surging to a near two-year high.

“Markets are starting to recognize that they thought we were in the eighth inning of the inflation fight but now it’s going to be higher for longer,” said Joe Mazzola, head of trading and derivatives strategist at Charles Schwab.

Benchmark 10-year Treasury yields hit 4.699% after the data pointed to a strong economy, the highest since April 26.

“Both of those things potentially have inflationary impacts and, as a result, yields have increased,” said Mike Dickson, head of research at Horizon Investments, referring to the economic data. “That’s definitely weighing on stocks.”

Signs of continued resilience in the economy have pushed back expectations on when the central bank can deliver its first interest rate reduction this year. Traders now see the next cut more likely in June and the Fed staying on hold for the rest of 2025, according to the CME Group’s FedWatch tool.

Concerns over the impact of possible tariffs by the incoming Trump administration on consumer prices have also been on investors’ minds. “A mix of solid growth and a new wave of inflationary pressure from tariffs means the Fed will likely switch from cutting interest rates at every decision … to pausing in between rate cuts in 2025,” Bill Adams, chief economist for Comerica Bank, said in a note.

The Dow Jones Industrial Average fell 178.20 points, or 0.42%, to 42,528.36, the S&P 500 lost 66.35 points, or 1.11%, to 5,909.03 and the Nasdaq Composite lost 375.30 points, or 1.89%, to 19,489.68.

Higher yields pushed technology-sector stocks lower by 2.39%. Shares of AI bellwether Nvidia fell 6.22%.

Most of the 11 S&P 500 sectors declined, except for healthcare and energy stocks.

The main focus of the week is the key non-farm payrolls data, along with minutes from the Fed’s December meeting.

In the previous session, the S&P 500 and the Nasdaq closed short of one-week highs on uncertainty after President-elect Donald Trump denied a report that his team was exploring less aggressive tariff policies.

Tesla shares fell 4% after BofA Global Research downgraded the stock to “neutral” from “buy.”

Micron Technology rose 2.67% after Nvidia boss Jensen Huang said the chipmaker was providing memory for the AI bellwether’s GeForce RTX 50 Blackwell family of gaming chips.

Citigroup rose 1.29% on bullish coverage from Truist Securities, while Bank of America went up 1.5% after positive ratings from at least three brokerages. Some big banks are expected to report quarterly earnings in the next week.

Declining issues outnumbered advancers by a 2.14-to-1 ratio on both the NYSE and the Nasdaq.

The S&P 500 posted 9 new 52-week highs and 16 new lows while the Nasdaq Composite recorded 60 new highs and 58 new lows.

Volume on US exchanges was 20.45 billion shares, compared with the 12.52 billion average for the full session over the last 20 trading days.

Markets will be closed on Thursday for a national day of mourning to mark the death of former President Jimmy Carter.

(Reporting by Carolina Mandl in New York; Additional reporting by Johann M Cherian and Sukriti Gupta in Bengaluru; Editing by Maju Samuel and Matthew Lewis)

Spiking yields puncture risk appetite, Japan warns on yen

Investors go into Wednesday’s market trading in Asia with their appetite for risk smothered by the rise in global bond yields.

As ever, US Treasury yields are front and center for markets that are more exposed than most to dollar-denominated debt and US borrowing costs. Especially on medium- to longer-dated maturities.

The 10-year US yield is its highest in eight months, the ‘2s/10s’ curve is the steepest in nearly three years, and the 30-year yield is within 10 basis points of 5.00%. It has climbed 60 bps in a month.

Longer-dated yields are rising globally even though many central banks are lowering policy rates – Britain’s 30-year gilt yield is the highest since 1998. The US Treasury’s sale on Wednesday of USD 22 billion of 30-year bonds could have a major impact on world markets.

There are times when signs of US economic resilience lift the global outlook and risk appetite picks up, but the release of surprisingly strong US job opening figures on Tuesday was not one of them. It was a case of ‘good news is bad news’, US yields and the dollar rose, and stocks tumbled.

That’s the global backdrop for Wednesday’s trading, which is likely to set the tone in Asia given how light the local economic calendar is.

There is little sign that Japan’s yen or China’s yuan is emerging from their recent funk, and currency traders in Asia will be on heightened alert for intervention from Japan after the dollar on Tuesday rose as high as 158.40 yen.

That’s the highest since July last year and close to the psychologically significant 160.00 yen level, and comes after Japanese finance minister Katsunobu Kato on Tuesday warned against what he said is speculative, one-sided yen selling.

Traders will note that a break of the 160 per dollar level prompted yen-buying intervention from Japanese authorities last year.

The weak yen helped the Nikkei rise 2% back above 40,000 points on Tuesday but futures are pointing to a fall of as much as 1% at the open on Wednesday.

The news flow around China, meanwhile, is still on the bleak side, offering investors little incentive to start buying beaten down Chinese assets.

US President-elect Donald Trump on Tuesday doubled down on his commitment to slap hefty tariffs on goods imported from major trading partners, and figures on Tuesday showed China’s FX reserves fell by USD 64 billion in December. That was the biggest monthly fall since April 2022, and one of the steepest since the yuan slide and waves of capital flight in 2015-16

Chinese stocks are down 5% so far this year, significantly underperforming their regional and global peers. The yuan is its weakest against the dollar since September 2023, and Chinese bond yields are collapsing.

Here are key developments that could provide more direction to markets on Wednesday:

– Australia inflation (November)

– South Korea current account (November)

– Japan consumer confidence (December)

(Reporting by Jamie McGeever)

Dollar down in choppy trade on Trump tariff confusion

NEW YORK – The US dollar was lower on Monday in choppy trading after conflicting reports about how aggressive President-elect Donald Trump’s tariff plans could be when he takes office.

The dollar dropped as much as 1.07% on the session against a basket of major currencies after the Washington Post reported that Trump’s aides were exploring plans that would apply tariffs to every country – but only on sectors seen as critical to US national or economic security, easing concerns about harsher and wider levies.

The dollar then sharply pared declines after Trump denied the report in a post on his Truth Social platform.

“The reality here is that Trump’s Truth Social views are going to drive FX volatility for a while and (Monday) morning’s reaction is indicative of the underlying dynamics,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“The market consensus is that Trump’s bark will be worse than his bite, and any news that confirms that concept is fuel for rallying in risk assets and for a decline in the dollar and Treasury yields, but the reality here is that the downside risks remain and there’s no clear endpoint for that,” Schamotta added.

The dollar index, which measures the greenback against a basket of currencies, fell 0.64% to 108.26, with the euro up 0.76% at USD 1.0386. The dollar was on pace for its biggest daily percentage drop since Nov. 27 with the euro poised for its biggest daily gain since Aug. 2.

The dollar index had reached a two-year high of 109.54 last week en route to its fifth straight weekly gain, as the resilient economy, the potential for higher inflation from tariffs and a slower pace of rate cuts from the Federal Reserve have buttressed the greenback.

The Chinese yuan strengthened 0.16% against the greenback to 7.348 per dollar. The dollar reached a 26-month high against the currency last week as China is seen as one of Trump’s major tariff targets.

Also helping the dollar pare declines were comments from Fed Governor Lisa Cook, who said the Fed can afford to be cautious with any further rate cuts given an economy that is on solid footing and inflation that has been stickier than expected.

Various Fed policymakers are scheduled to speak this week, and are likely to echo recent comments from other Fed officials that there remains a need to combat the stubborn levels of inflation.

The euro, which hit its lowest level since November 2022 last week, strengthened after annual German inflation rose more than forecast in December, according to preliminary data.

“There’s a window there for potentially 2%, 3% or 4% correction in the dollar index that could unfold in the next while, but we’d need either a stronger sense that either the European economy’s doing a bit better, so we see a further pick up in European interest rates, or some further moderation in expectations regarding tariffs to drive that,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.

US economic data showed new orders for US-manufactured goods fell in November while business spending on equipment appeared to have slowed in the fourth quarter.

Against the Japanese yen, the dollar firmed 0.17% to 157.53 while sterling strengthened 0.72% to USD 1.251.

Investors will gauge a string of data on the US labor market this week, culminating in Friday’s key government payrolls report.

The Canadian dollar strengthened 0.74% versus the greenback to C$ 1.43 per dollar after Canadian Prime Minister Justin Trudeau said he would step down as leader of the ruling Liberals in the coming month.

(Reporting by Chuck Mikolajczak, additional reporting by Lisa Pauline Mattackal in Bengaluru; Editing by Bernadette Baum, Will Dunham, and Emelia Sithole-Matarise)

S&P 500, Nasdaq end higher, driven by tech stocks

The S&P 500 and the Nasdaq Composite rose on Monday, boosted by a rally in semiconductor stocks and a report that suggested the incoming Trump administration could adopt a less aggressive tariff stance than expected.

According to preliminary data, the S&P 500 gained 32.96 points, or 0.56%, to end at 5,975.98 points, while the Nasdaq Composite gained 243.30 points, or 1.24%, to 19,864.98. The Dow Jones Industrial Average fell 22.40 points, or 0.05%, to 42,709.73.

Most of the 11 S&P 500 sectors ended lower, but communication services and tech stocks climbed.

“What we’re seeing is more of what happened last year, which is a rally concentrated on the largest stocks,” said Michael Green, portfolio manager at Simplify Asset Management, adding that flows from 401(k) retirement plans are helping drive stocks higher.

Chipmakers got a boost from Microsoft’s plan to invest USD 80 billion to develop artificial-intelligence-enabled data centers, as well as Foxconn’s forecast-beating fourth-quarter revenue.

Nvidia, Advanced Micro Devices, and Micron Technology rose. The Philadelphia Semiconductor index jumped.

Tech stocks rose despite benchmark 10-year Treasury yields reaching the highest since May.

US stocks had rebounded sharply on Friday after a string of losses in December and the first few sessions of January, when concerns about high valuations, rising Treasury yields, and thin liquidity saw traders pull back after a strong 2024 run.

Automakers Ford and General Motors gained after a newspaper report said President-elect Donald Trump’s incoming administration is focused on imposing tariffs on every country, but only certain sectors deemed critical to national or economic security. Trump later refuted the report.

“He did come out and say that he’s not going to water down his tariff plan, but the seed has been planted that the Trump administration’s tariff policies won’t be quite as shocking as people originally feared,” said Brian Jacobsen, chief economist at Annex Wealth Management.

Automobile manufacturers are considered the most vulnerable to tariffs imposed on US trade partners, given their vast supply chains.

Leading to Trump’s Jan. 20 inauguration, investors are seeking insights into his policies, which are broadly seen as beneficial for corporate America as well as the US economy.

Citigroup moved higher after a bullish rating from Barclays. An index tracking banks rose. Fed Vice Chair for Supervision Michael Barr, who has sought a range of strict rules on the nation’s biggest banks, said he will resign.

In a week packed with economic data and speeches from US Federal Reserve officials, investors will look for clues on the pace of monetary policy easing this year. Later in the week, the focus will be on a monthly payrolls report.

While Trump’s proposals could boost corporate profits and energize the economy, they also risk driving up inflation. Fed Governor Lisa Cook was the latest among a number of policymakers to caution that inflation risks remain in the new year.

Markets will be shut on Thursday for a national day of mourning to mark the death of former President Jimmy Carter.

(Reporting by Sruthi Shankar, Johann M Cherian, Pranav Kashyap, and Sukriti Gupta in Bengaluru; Editing by Pooja Desai, Maju Samuel, and Rod Nickel)

Chip firms surge on hopes of strong AI-led demand

Shares of chipmakers jumped on Monday as Microsoft’s plan to invest USD 80 billion in AI-enabled data centers in fiscal 2025 spurred bets that semiconductor demand would remain strong.

Micron was the biggest gainer among semiconductor stocks with a 10.6% rise, while chip-making equipment companies like Applied Materials, Lam Research, and KLA Corp. rose between 5.1% and 5.5%.

The Philadelphia Semiconductor Index hit its highest since mid-October and was last up 3.9%. The index jumped over 19% in 2024.

The tech-heavy Nasdaq led Wall Street’s main indexes higher, while semiconductor stocks in
Europe and South Korea also surged earlier in the day.

Citigroup said Microsoft’s spending plan although in line with analysts’ estimates was a “modest positive” update as it removed the risk of a drop in capital expenditure.

“AI data centers are very chip hungry, that’s why you have people running towards the chip sector right now,” said Michael Matousek, head trader at US Global Investors.

Contract manufacturer Foxconn’s record revenue for the fourth quarter on the back of strong demand for AI servers also added to the overall euphoria in the chip sector.

Nvidia, a Foxconn customer, added 5.1%. The AI bellwether’s CEO, Jensen Huang, is set to deliver a keynote speech at the CES trade show later in the day. AI server maker Super Micro Computer jumped 10.3%.

Nvidia’s quarterly results in November signaled a slowdown in revenue growth but those worries were brushed aside by enormous demand for the company’s AI chips, which dominate the market.

(Reporting by Medha Singh and Purvi Agarwal in Bengaluru; Editing by Anil D’Silva)

Longer-dated yields rise amid supply

NEW YORK – The benchmark 10-year Treasury yield hit the highest since May on Monday while the 30-year yield posted a 14-month high before the Treasury’s auction of longer-dated debt over the next two days.

Demand was soft for the Treasury’s sale of USD 58 billion in three-year notes on Monday, leading to a high yield of 4.332%, more than a basis point above where they traded before the auction. Demand was 2.62 times the amount of debt on offer, the highest since September.

Auctions of USD 39 billion in 10-year notes will follow on Tuesday and USD 22 billion in 30-year bonds on Wednesday.

Yields briefly declined after a news report indicated that planned tariffs under President-elect Donald Trump would be less aggressive than previously feared.

Trump’s aides are exploring tariff plans that would be applied to every country but only cover certain sectors deemed critical to national or economic security, the Washington Post reported on Monday. Trump denied the report on Monday.

Trump is expected to cut taxes and business regulations, which analysts say should boost growth. Other policies including a clampdown on illegal immigration and tariffs are expected to boost inflation, which could weigh on the economy longer-term.

A number of leading economists, including advisers to past US presidents, however, said Trump’s plans may not prove as inflationary as early analysis had suggested.

Traders are unsure on exactly what policies are likely to be introduced and how they will affect US debt.

“There’s a big uncertainty of what happens when the new president is inaugurated and gets the shot at a budget reconciliation bill,” said Will Compernolle, macro strategist at FHN Financial.

“What is that going to do for implications of Treasury issuance? I think no one’s really sure what the net impacts will be, but there’s more upside risk to rates.”

Concerns over the fiscal trajectory are fueling the rise in longer-term yields, with the Treasury expected to continue to increase debt to pay for the budget deficit.

“A lot of that is coming from an impression that the new Treasury Secretary will be funding the Treasury with more focus on longer-dated stuff rather than shorter-dated stuff because Janet Yellen, secretary of the Treasury, has been really focused on bringing more T-bills and more front-end paper,” said Tom di Galoma, head of fixed income trading at Curvature Securities.

Interest rate sensitive two-year note yields were last down 0.9 basis points at 4.27%.

Benchmark 10-year yields rose 1.7 basis points to 4.612%. They earlier reached 4.644%, the highest since May 2.

Thirty-year yields increased 1.7 basis points to 4.8316%. They reached 4.861%, the highest since November 2023.

The Federal Reserve is expected to make fewer interest rate cuts this year as inflation remains above its 2% annual target.

Fed Governor Lisa Cook said on Monday the US central bank can be cautious with any further rate cuts given a solid economy and inflation proving stickier than previously expected.

Economic releases this week will include Friday’s jobs report, which is expected to show 154,000 jobs added in December.

(Reporting by Karen Brettell; Editing by Mark Potter and Richard Chang)

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