Recently, the yield for 10-year government bonds recorded a peak not seen since October 2023, reaching 4.7%. Two-year bond yields also jumped to 4.3%. What characterized the past? During President Donald Trump's first term (2017-2021), his economic policy was distinguished by several key aspects:
- Significant tax reductions
- Protectionist trade policy
- Pressure on the Federal Reserve to lower interest rates
- Expansion of the budget deficit
The expected impacts on the US bond market include: government deficit, potential further deficit expansion due to promises of additional tax cuts, and continued high government spending. The implication: an increase in government bond supply.
Interest rates. There is expected to be increased political pressure on the Federal Reserve, a possibility of replacing the Federal Reserve chair in 2026, and a high likelihood of a more expansive monetary policy.
Credit risks. Potential repeated conflicts around the debt ceiling, impact on the US credit rating, and an increase in risk premiums for government bonds in the short term.
Primary risks in this scenario: escalation of trade wars and its impact on the global economy, regulatory uncertainty, volatility in financial markets, changes in monetary policy.
There is much on the table in Washington in 2025 that could affect investors' financial security, especially as foreign investments become increasingly significant in the financial and pension portfolios of Israeli residents. Since it is still early and we are only in early January, the step that can be considered is not to make any financial moves in haste.
The above should not be considered a substitute for personalized investment advice tailored to the client.
