Pre-Trump trades lift US yields, yuan shaky

A look at the day ahead in U.S. and global markets from Mike Dolan

The first full trading week of 2025 kicks off with markets positioning for the Jan. 20 inauguration of Donald Trump as President, lifting U.S. ‘long bond’ yields to their highest in two years and forcing Beijing to calm nervy Chinese markets.

With fiscal concerns to the fore as a new Congress convened on Friday and narrowly re-elected Republican Mike Johnson as speaker, the 30-year Treasury bond yield on Monday hit its highest level in more than two years – breaching last year’s peak to reach 4.85%.

The long bond yield is now stalking the 5% level last topped in late 2023 and the 2-to-30-year yield curve gap is at its widest in more than three months.

Reflecting the degree to which rising long-term borrowing rates are down to concerns about fiscal impact of tax cuts and long-term inflation uncertainty, the New York Federal Reserve’s estimate of the 10-year ‘term premium’ demanded by investors to hold longer term debt to maturity is at its highest since 2015.

But the brisk growth and relatively hawkish Fed picture is playing its part too, with Friday’s surprisingly upbeat U.S. manufacturing reading for December adding to the prior day’s news of a drop in weekly jobless claims to an eight-month low.

With a big week of labor market updates ahead, culminating in an expected 150,000 rise in national payrolls in Friday’s employment report, the U.S. economic surprise index has returned to positive territory after a brief dip negative last week for the first time in three months.

Adding to the inflation anxiety has been a return of U.S. crude oil prices to their highest since October – albeit off a touch first thing Monday.

As for Fed thinking, futures pricing shows markets even more hawkish than the central bank – which recently indicated just two interest rate cuts this year. Fed futures now have just one quarter-point cut priced by June only see just over a 50% chance of a second cut by year end. ]

San Francisco Fed boss Mary Daly and Fed governor Adriana Kugler said over the weekend that the job was not yet done on reining in inflation.

The brisk underlying growth picture and tax cut hopes did see U.S. stocks regain their poise on Friday after a bumpy couple of holiday-strewn weeks. Wall Street stock futures were up again ahead of Monday’s bell, with one eye on the imminent fourth-quarter earnings season.

Sailing to two-year highs last week on that interest rate picture and speculation about draconian trade tariffs from the incoming Trump administration, the dollar has dialled back a bit on Monday – with Chinese officials mobilising to steady the yuan as it plumbed 16-month lows and threatened pivotal historical levels around 7.35 per dollar.

Story Continues