Yields soar as Trump win stirs 'bond vigilantes'
Longer-dated U.S. bond yields surge
Trump win seen widening deficits
Tariff plans could also increase inflation
Updates at 6.10 a.m. ET/1110 GMT
By Harry Robertson and Rae Wee
LONDON/SINGAPORE, Nov 6 (Reuters) -U.S. Treasuries fell sharply on Wednesday, sending yields surging, as Donald Trump's election victory stoked bets on economic policy shifts that could boost deficits and inflation.
Republican former president Trump swept back to power early in the U.S. morning, beating Democrat Kamala Harris in crucial swing states and capping a political comeback four years after he left the White House.
The benchmark 10-year Treasury yield US10YT=RR rose as much as 18 basis points to 4.471%, its highest since July, as polls also showed Republicans winning control of the Senate and a close race for the House of Representatives.
The yield, which moves inversely to the price, was last up 16 bps at 4.449%, on track for its biggest one-day rise since April as of 6.05 a.m. ET.
Trump campaigned on a platform of tax cuts, which economists say would juice the economy, widen budget deficits and increase government borrowing. He also touted tariffs, which analysts expect to stoke inflation and reduce the Federal Reserve's scope to cut interest rates.
"We need to watch what happens to bond yields, and there could be a tipping point if U.S. bond yields continue to rise," said Seema Shah, chief global strategist for Principal Asset Management.
"The bond vigilantes are out," she said, referring to investors dumping government debt over worries about rising deficits.
The yield on the 30-year Treasury note US30YT=RR last traded 19 bps higher at 4.641%. That was its highest since early July and set for its biggest one-day rise since March 2020, underscoring concerns about future borrowing.
Trump clinched victory at around 5.30 a.m ET after capturing the battleground states of Wisconsin, Pennsylvania, North Carolina and Georgia, according to Edison Research.
Treasury yields surged once it became clear Trump had considerably improved on his 2020 election performance against Joe Biden.
The two-year yield US2YT=RR peaked at 4.312%, its highest since August, and last traded roughly 5 bps higher at 4.255%.
How much of Trump's tax cut plan will make it through Congress depends on whether the Republicans achieve a clean sweep. Close House races could take days to call.
U.S. budget deficits and government debt levels were projected to surge under either candidate in the election, according to several estimates, although Harris was expected to add less debt than Trump.
The Federal Reserve kicks off its two-day monetary policy meeting on Wednesday and is expected to deliver another 25-basis-point rate cut, though future decisions look less certain.
Traders have reacted to the election results by trimming bets on Fed cuts next year, with rates seen staying above 4% until May 2025 FEDWATCH.
"I start to worry when yields cross the 4.50% mark," said Matt Orton, chief market strategist at Raymond James Investment Management.
"If we don't reverse that upward trend, I would be more reticent to add too much more risk until we hear from the Fed or get a little bit more guidance with respect to where terminal rates might lie."
European bond yields, meanwhile, fell as investors increased their bets on rate cuts from the European Central Bank, given Trump's plans for tariffs on China and Europe could hurt the euro zone economy.
Germany's 2-year bond yield DE2YT=RR, which is sensitive to ECB rate expectations, was last down 13 bps at 2.171%.
U.S. yields hit multi-month highs on likely Trump win https://reut.rs/3AjB2ah
Reporting by Harry Robertson in London and Rae Wee in Singapore; Additional reporting by Dhara Ranasinghe; Editing by Christopher Cushing, Shri Navaratnam, Christina Fincher and Barbara Lewis
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