The U.S. 10-year yield is on a tear, breaking out to the upside this week and showing no signs of slowing down. Honestly, it’s not a huge surprise. Several factors are conspiring to push yields higher: U.S. macro data refuses to play dead, and Trump’s resurgence in the polls—fueling this already fiery market. The “Trump Trade” is back in the driver’s seat, steering everything from bonds to the currency market, with election risks now gripping investor sentiment like never before.
The latest data from prediction platforms like Polymarket, Kalshi, and PredictIt now show Trump’s odds of reclaiming the Oval Office shooting past 60%, with talk of a Red Sweep gaining traction. And this isn’t just making headlines—it’s moving markets. The dollar is getting a nice tailwind, rising against everything in its path, while Treasury yields, well, they’re doing their best to keep pace, pushing above 4.20% as the market tries to make sense of what a Trump 2.0 presidency could mean for policy shifts, fiscal spending, and inflation.
Meanwhile, over in FX land, it’s shaping up to be a wild ride for the yen. Japan’s political scene is messy, and that uncertainty keeps the yen on the defensive, but the real showstopper here is U.S. election risk. The yen is dealing with an overload of uncertainty from both sides of the Pacific, and the USD/JPY pair is flirting with the 151, with some daring to whisper about 155 on the horizon if those swing state polls start aligning with the betting markets. Traders are known for acting on the enticing 77% accuracy probability from election odds emerging from betting pools; these odds have become quite reliable at this point.
Japan’s Ministry of Finance? Let’s just say they’re stuck between a rock and a hard place. Do they let the yen spiral lower, or do they jump in with some heroic FX intervention? Honestly, there’s little point in stepping in until the U.S. election dust settles. Perhaps a post-Japan election stimulus package could dull the sharp edge of the yen sell-off, but for now, it’s getting hammered by all the election noise.
And it’s not just the yen feeling the heat. Across the board, the dollar is on a roll as Treasury yields spike, trying to play catch-up with Trump’s rising election odds. Sure, there’s been a touch of hawkish Fed chatter here and there, but let’s not kid ourselves—the size of the moves we’re seeing goes well beyond the usual Fed-speak. This is pure election-driven action, and some traders are clearly panicking, realizing they weren’t positioned for a potential Trump win.
If Trump does pull off a victory, expect a bigger budget deficit, corporate tax cuts, and a friendlier regulatory environment, all of which could boost growth but also lead to higher inflation and interest rates. Throw in some good ol’ trade protectionism for good measure, and you’ve got a recipe for more dollar strength. In this scenario, U.S. exceptionalism will likely keep the S&P 500 and the dollar firmly in the “buy” column. At this point, it’s hard to argue against owning U.S. stocks and the greenback, with the Trump trade looking poised to gain even more momentum.
