Interest rates rose today despite economic data coming in on the soft side. Because the movement is concentrated at the long-end of the yield curve (30-year higher by 7.5bps, 2-year higher by 1bps), this is the bond market digesting the reality that Biden is a long-shot to win after his poor performance at the debate last night. His odds fell from a 33% chance before the debate to now just 22% (see image from Polymarket betting platform below).

A Trump presidency is considered more inflationary because he would want to keep short-term rates lower than would be warranted by the economy thus creating more inflation in the future (why the yield curve steepened today), he intends for a bigger budget deficit (extending tax cuts), and has proposed more tariffs. But ultimately, inflation is a problem for a Trump presidency too, and so I don’t think he will be as inflationary as feared should he take office.

No matter who becomes President, the business cycle is a much bigger effect on interest rates than politics. The severity of an upcoming recession will be the ultimate determinant of where interest rates go.