Bond ETFs Slide As Fed Cuts Clash With Trump's Fiscal Agenda

Investors looking to bonds and bond ETFs for stability may face heightened volatility due to President-elect Donald Trump's approach to tariffs could put upward pressure on yields.

What Happened: Bond yields continue to climb after the Fed's 25-basis-point rate cut on Thursday. With the 10-year Treasury yield reached 4.34% in response to market speculation around Trump's fiscal agenda.

This shift complicates the Federal Reserve's efforts to ease borrowing costs, a concern for individual bondholders and bond ETFs investors. The backdrop of tax cuts and anticipated tariffs could limit the Fed's ability to cut rates deeply.

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Since mid-September, Treasury yields have surged by over 70 basis points, putting additional pressure on bond prices and impacting major bond ETFs. BofA Global Research has adjusted its outlook, with Treasury yields now projected in the 4.25%-4.75% range, Reuters reports. This rising yield environment creates challenges for bonds, as higher yields correspond to declining bond prices, which could erode returns for investors in bond ETFs.

Why It Matters: According to Reuters, the Committee for a Responsible Federal Budget estimates that Trump's proposed fiscal policies will add approximately $7.75 trillion to the national debt in a decade. Economists, banks and analysts have all warned that the plans will worsen inflation and make debt unsustainable.

Bond ETFs, which offer exposure across various segments of the bond market, are likely to feel the impact of these fiscal pressures as bond yields trend higher.

Increased yields may lead to more appealing income for bond ETF investors but could also heighten risks related to price declines as yields continue to rise.

On Monday, 10 prominent bond ETFs were mainly trading lower:

• Vanguard Total Bond Market ETF BND: $72.93, down 0.22%.
• iShares Core U.S. Aggregate Bond ETF AGG: $98.26, 0.25% lower.
• SPDR Portfolio Aggregate Bond ETF SPAB: $25.34, down 0.3%.
• iShares iBoxx $ Investment Grade Corporate Bond ETF LQD: $109.60, 0.23% lower.
• Vanguard Short-Term Corporate Bond ETF VCSH: $78.30, down 0.09%.
• iShares 20+ Year Treasury Bond ETF TLT: $91.93, down 0.6%.
• Vanguard Intermediate-Term Corporate Bond ETF VCIT: $81.47, 0.22% lower.
• iShares U.S. Treasury Bond ETF GOVT: $22.72, down 0.24%.
• SPDR Bloomberg High Yield Bond ETF JNK: $97.02, down 0.05%.
• Vanguard Total International Bond ETF BNDX: $49.94, up 0.09%

With rising bond yields and fiscal expansion under Trump, bond ETFs could continue to see volatility.

Bond investors may need to weigh the attraction of higher yields against potential declines in bond prices, particularly in high-yield and long-term Treasury segments, where market shifts are expected to be most pronounced.

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