Explanations abound for the recent bond sell-off that spooked markets and signaled higher mortgage and loan costs. The most popular one is a recent blowout jobs report coupled with trepidation over Wednesday's important inflation update that the Fed will have watched keenly. Other potential reasons for spiking bond yields are unusually high deficit levels and a natural adjustment following years of near-zero interest rates. But there is also a wildcard in the mix: The ongoing uncertainty about how exactly president-elect Donald Trump will follow up on his pledges about tariffs, tax cuts, and immigration.
Some fear those pledges could translate to a collapse in revenue for the U.S. government. One non-partisan group, the Committee for a Responsible Budget, estimated in October that Trump’s fiscal plans could increase the federal debt by $7.75 trillion. If this sort of budget hole is indeed on the horizon, bond yields could be an early warning sign.
