The US government bond yields continued rising overnight as traders reacted to the latest intervention by Treasury Secretary and the new Trump announcement on the $5,000 dividend checks.
The ten-year extended gains, reaching a high of 4.85%, its highest level since 2023. Similarly, the 30-year yield rose to 5.30%.
Trump proposes $5,000 dividend checks if Republicans win
In a speech at the Republican Convention, President Trump promised voters that he will give all adults a $5,000 dividend check if they win the House of Representatives and the Senate.
The proposal came as Trump faces low approval rates, which will endanger the current majority. Polls show that Democrats have a higher chance of winning the House of Representatives and the Senate.
Many voters are blaming Trump and the Republicans for the current state of the economy. Trump’s Iran war has led to a surge in energy prices, with gasoline and diesel prices being in a strong uptrend. Higher energy prices have made it harder for the Federal Reserve to win the inflation battle.
This situation has been made worse by Trump’s trade wars, including the ongoing one with Canada. He has placed significant tariffs against all countries, which has raised consumer and producer prices.
Economists expect that the upcoming inflation report will show that the headline and core figures rose in August.
Trump dividend checks would be hard to fund
There are a few reasons why Trump will not succeed in getting the $5,000 checks for all American adults. First, such a proposal would need congressional approval. Last year, Congress resisted Trump’s proposals for a $2,000 check, which was to be paid using the tariff revenue.
Second, Trump already controls the Senate and the House of Representatives, meaning that he has the votes he needs to pass the bill through reconciliation. But he has not, demonstrating how hard that is.
Third, the dividend checks would cost over $1 trillion, an enormous amount at a time when the public debt has jumped to the highest level on record. It recently crossed the $40 trillion milestone and has already climbed by over $100 billion.
Further, it would lead to a sticker inflation in the country. As you remember, inflation surged to the highest level in 40 years during the Joe Biden era after he provided $2,000 checks.
The soaring debt explains why bond vigilantes are pushing back, which has pushed Treasury yields higher. This surge continued this week even after Treasury Secretary Scott Bessent tripled the amount of bond buybacks.
The US bond yields are soaring as some countries start reconsidering their holdings. Canada, which holds $459 billion in US public debt, may decide to sell some of its holdings as the trade war continues. China has reduced its holdings to $633 billion, while Japan has reduced to $1.116 trillion.
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