US bond market reacts to Biden’s exit with ‘Trump trade’ reversal

NEW YORK – US government bond investors on Monday unwound some of the trades that were put in place on expectations of a second US presidency of Republican Donald Trump, as US President Joe Biden’s exit from the presidential race was seen as improving the Democrats’ elections odds.

Biden’s decision on Sunday to step aside and endorse Vice President Kamala Harris to replace him as the Democratic candidate cast doubt over a Trump victory. Online prediction site PredictIt Monday morning showed pricing for a Trump victory slipped 3 cents to 60 cents over the previous 24 hours, while bets on an election win by Harris climbed 13 cents to 38 cents.

“The market’s response to the presumed change to Harris is a slight offset to the ‘Trump-trade’ of renewed inflationary angst,” analysts at BMO Capital Markets wrote in a note.

Long-term US Treasury yields, which move inversely to prices, declined in early trade. Benchmark 10-year Treasury yields were about two basis points lower to 4.219% and 30-year yields were nearly three points lower to 4.424%. Two-year yields climbed slightly to 4.519%.

Long-dated bond yields tend to reflect market expectations of the long-term trajectory of economic growth and inflation, while shorter-dated debt securities typically move in line with expectations of monetary policy changes.

So-called Trump trades were visible in the Treasury market over the past few weeks. Long-term yields gained about five basis points after Biden’s disastrous TV debate last month and after an assassination attempt on Trump, which increased expectations that Trump could regain the White House.

Those moves, although brief, reflected concerns that a Trump presidency would lead to higher inflation and wider US federal government’s budget deficits, which would spur more Treasury debt issuance.

“Trump 2.0 will be a more inflationary policy regime, given restricted immigration, higher tariffs, and the extension of the Tax Cut and Jobs Act of 2025,” Thierry Wizman, global FX and rates strategist at Macquarie, wrote in a note on Monday.

“Under Trump … yields will be higher than they would be under Harris (or would have been, under Biden),” he said.

(Reporting by Davide Barbuscia, Editing by William Maclean)