US Treasury bonds declined, causing yields to reach a one-month high after the US Supreme Court ruled that Donald Trump has some immunity from criminal charges related to efforts to overturn the 2020 election results. There is increasing speculation that a potential Trump presidency could lead to a steeper yield curve, as it might slow economic growth and accelerate inflation. The US dollar could experience a prolonged period of strength, as the inflationary risks associated with a Trump presidency may compel the Federal Reserve (Fed) to maintain higher interest rates for an extended period.
Even before last week's presidential debate, polling trends were unfavorable for the Democrats. Since mid-April, the PredictIt poll indicated just under a 60% probability of Biden winning the election. This probability has declined along with US macroeconomic data, with the economic surprise index hitting its lowest point since 2022. Consequently, with rising expectations of a Trump presidency, reinforced by the debate and its implications for expansionary fiscal policy, long-term Treasury notes and bonds have faced pressure, reducing the current inversion of the yield curve. The yield on the US 10-year Treasury note exceeded 4.45%, its highest level in approximately four weeks.
Meanwhile, data from the ISM indicated that the manufacturing sector underperformed in June, with lower-than-expected results in headline reading, employment, and prices paid. This marked the third consecutive month of declining manufacturing activity and the weakest reading since February. Additionally, investors are positioning themselves ahead of the JOLTS job openings report, one of the Fed's preferred labor market indicators, and upcoming remarks from Fed Chair Jerome Powell in Sintra, which could bring hawkish central bank rhetoric back into focus.
