Stocks may have a bond problem.

Let’s take a quick step back. On the eve of the Fed’s September meeting, 10s were 3.63%. 75bps of rate cuts, one election and two months later, they’re 4.43%.

Is that a “harrowing” selloff? Not really, no. But it’s meaningful and equities struggled with it a bit last week.

The figure below, updated with the latest estimates from the NY Fed’s model, is a reminder that behind the October 2024 “Trump trade” in Treasurys was a re-run of the late-summer/early-autumn 2023 term premium rebuild. The NY Fed estimate stood at -26bps just prior to the September FOMC. The local high was +33bps on November 13.

That’s fiscal worries. Really it is. I hear (and you hear) from strategists that the outlook for America’s fiscal trajectory would’ve been far worse in a “blue sweep.” I don’t necessarily disagree, but there was no term premium rebuild when Kamala Harris surged ahead in the polls after ascending the Democratic ticket.

I guess you could argue Democrats never had a chance of retaining the Senate and flipping the House, so bonds had no reason to fret, but… well, the bottom line is that if you plot the term premium with “red sweep” / Trump betting odds which turned out to be more accurate than traditional polling (sorry for doubting you Polymarket, you were right all along), the relationship’s clear enough.

As discussed in the latest Weekly, markets and PMs, enamored with “The Donald” though they most assuredly are on some scores, understand that fiscal restraint and populist movements are the opposite of peanut butter and jelly. It doesn’t help that fiscal policy ideas are quite likely to exhibit an ad hoc character going forward, where that means you’re going to have the leader of the movement brainstorming in real-time about anything and everything, including spending decisions, on social media.

The MOVE’s calmed down considerably since the election event risk cleared, but as the simple figure below shows, it’s still elevated and do note: The long run average (in green) is pulled up by the fireworks during the GFC. If you exclude the GFC, current levels are extreme. (I realize that’s like saying “If you exclude all the high readings, it’s low,” but Lehman was a 100-year flood. The better pushback to what I just said is probably that bond vol was artificially suppressed post-GFC by QE and forward guidance, so it’s hard to say what “normal” is and what counts as “extreme.”)

Colloquially: There’s just too damn much going on. As Jerome Powell noted during his press conference this month, nobody really knows what the incoming government’s fiscal policy is going to look like.

“We’re all about growth” (as Trump put it, in remarks to Bloomberg just prior to the vote) isn’t a plan. I’m not even sure that’s a “concept of a plan.” The same goes for “we’re going to cut your taxes.” Those are just declarative statements with intent.

With the GOP in control of Congress, there’s every reason to believe (more) tax cuts are coming, both for individuals and corporate “people.” That’s all stocks need to know, but bonds have additional questions. Trump saying, “We’re going to cut your taxes” is like W. saying, “We’re going to bomb your country.” Everyone believes him. That’s not the issue. The issue is that a declarative statement with intent doesn’t necessarily constitute a plan all by itself. It depends on the context and, relatedly, on the complexity of what you’re doing. “I’m going to wash my car today” is a plan all by itself. “I’m going to topple Saddam Hussein” isn’t. “I’m going to cook potatoes” is a plan. “We’re going to cut your taxes” might be a plan, but we need more. We need the “deets,” as the kids say.

It’s the lack of “deets” that has bonds concerned, and I don’t know about anyone else, but I’m uncomfortable with the implicit notion that somehow, equities can sustain record highs on nosebleed valuations with bonds in perpetual flux. I realize it’s early — indeed, Trump’s actually moving very fast, even if you don’t like his personnel decisions — but the bond market really would appreciate some clarity from the GOP on fiscal policy, and clarity from Trump on who’s going to run Treasury.

As BMO’s Ian Lyngen and Vail Hartman put it, “beyond the decisiveness of the Republican victory, the post-election period has led to more questions than have been resolved [and] the feedback loop between higher Treasury yields and wobbles in the equity market will take center stage” in the days and, perhaps, in the weeks and months, ahead.