Early Election Jitters: Bidens Debate Performance Sends Interest Rates Up

Investors are usually slow to react to potential election outcomes, but this year, they seem to be pricing in a possible Republican sweep in the upcoming election. This shift in sentiment follows the first presidential debate, where Biden underperformed, leading to an increase in the perceived likelihood of a Trump victory and a Republican-controlled Congress.

This potential shift in power has already impacted the bond market, with interest rates on 10-year Treasury securities rising. This is because investors anticipate that a second Trump presidency, coupled with a Republican Congress, would lead to policies that could increase inflation, such as new import tariffs. This, in turn, would likely prevent the Federal Reserve from cutting interest rates, which would otherwise be a possibility given the recent decline in inflation.