One of Donald Trump’s key aims has been to reduce long-term interest rates by focusing on lowering the deficit. A smaller deficit impacts the long-term premium, with concerns over the US being on an “unsustainable path” potentially leading to higher taxes or increased money printing. This future risk may cause buyers of US debt to demand higher interest rates.

Short-term rates are influenced by central bank policy, while long-term rates depend on market factors. These include future central bank policies, inflation expectations, and the future supply and demand of Treasury debt issuance. Economic growth prospects improve as trade barriers lower, potentially raising economic activity and sustaining inflation.

Framework For Fiscal Policy And Macroeconomics

With improved global growth conditions, strong economic activity might prevent rate cuts, impacting long-term yields. There is a possibility that long-term interest rates could increase in the second half of 2025. Once they roll over, a new low might be established.

What we see in the above is a framework for assessing how fiscal policy and macroeconomic expectations are beginning to steer long-dated yields. The original focus is on how political efforts to cut the deficit could help bring down the term premium—the compensation investors demand for holding longer-term debt. The concern raised is that if the US deficit is not addressed in a convincing way, it could trigger anxiety among bondholders about future fiscal stability. That concern has a tangible impact: those buying long-term government bonds may demand a higher interest rate to offset uncertain risks, such as inflation, tax increases, or the dilutionary effect of excessive money creation.

The market doesn’t treat interest rates as static across all timescales. We know that short-end movements tend to mirror what central banks communicate—rate decisions, policy stances, and monetary operations. But for ten years out and beyond, things aren’t as reactive. Instead, they reflect expectations: future Fed moves, the trajectory of the economy, and the balance of government borrowing and investor demand.

Right now, economic activity appears stable and even improving in places, in part because barriers to commerce have been coming down. This could translate to more trade and corporate investment over time, both of which contribute to faster output growth and firmer prices. Inflation supported by such organic growth is less likely to trigger emergency responses, but it still influences rate forecasting.

Opportunities And Market Timing

What this means, especially for those focused on volatility around the long end, is that bets on a steep rate decline may not play out cleanly in the near term. If growth persists into next year, the space left for easing narrows. Stronger macro data prints—read: consistent employment, solid purchasing activity, and stable inflation—will likely delay any loosening by the Fed, further supporting elevated long-run rates. In such conditions, long duration instruments may underperform, particularly before the middle of 2025.

As for timing, there’s a mention that yields could rise again into the second half of next year. The phrasing around “rolling over” and forming “a new low” implies that we might not yet have seen the upper limit in yields. Once that peak is behind us, we may find a floor—likely lower than before if risk sentiment or growth expectations begin to cool. That inflection, if supported by data and policy shifts, could open windows for realignment in fixed income portfolios.

From where we’re standing, this presents some opportunities, but not all are immediate. Traders should remain alert to upward moves in long-dated rates during periods of strong headline figures. Leverage and exposure on longer-dated maturities should be monitored closely. If short covering or forced rebalancing begins near expected yield highs, positioning could shift quickly. Timing entries too early could be expensive. Patience is more than just caution here—it’s a method.

Watching issuance pace from the Treasury and any comments from policymakers on deficit control will also help us read the room. For now, we continue to lean on cautious calibration. Data and credibility remain the driving forces.

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