Politics 5 min read By Callum Montgomery
Rising Treasury yields threaten Trump’s midterm campaign as affordability concerns grow
Long-term US Treasury yields are climbing to multi-year highs, raising borrowing costs for households and businesses just two months before the midterm elections. The bond market selloff is complicating President Trump’s economic message, with voters already naming the cost of living as their top concern.
The bond market is emerging as an unexpected threat to President Donald Trump’s midterm campaign, as rising long-term Treasury yields push up borrowing costs for American households and businesses just two months before voters go to the polls. The yield on the 10-year Treasury, the benchmark for mortgages, car loans and corporate spending, climbed above 4.8% this week, its highest level since October 2023, while the five-year yield sits near 4.6%, up from below 4% in March.
The selloff is not confined to the United States. Long-term bonds have been selling off across most advanced economies, a shift that Robin Brooks, senior economics fellow at the Brookings Institution, described as a “slow burn” rather than a sudden shock. After years of ultra-low interest rates during the pandemic, followed by an intensive hiking cycle and unmoored fiscal spending, rates are now in a melt-up in essentially every Western economy except Switzerland and Sweden, which have kept their deficits low.
The political danger is real, according to analysts who study how bond markets constrain governments around elections. “Sustained higher interest rates can translate into the balance sheets of households fairly quickly,” said Stephen Kaplan, a professor of political science and international affairs at George Washington University. “And that can have repercussions during elections.” Kaplan argued that voters are less likely to blame Treasury Secretary Scott Bessent than they are to blame Trump, drawing a parallel with how the public reacts to inflation: they may not track the Federal Reserve’s 2% target, but they notice when beef and eggs cost more, or when higher rates make buying a house untenable and companies stop hiring.
The Trump administration has been paying close attention to long-term rates. Bessent has already announced Treasury buybacks and renewed reliance on short-term borrowing in an effort to prevent long-term yields from climbing further. At the G20 summit on Wednesday, he argued that the economy remains “very, very strong” and that interest rates should fall once the US gets “on the other side” of the conflict with Iran. He also repeated a line used by Kevin Warsh, Trump’s nominee for Fed chair, suggesting that artificial intelligence will become “extremely disinflationary” once productivity benefits materialise, possibly within six months.
But six months would be too late to bring down the numbers before the midterms, and voters are already judging the economy on its pressure points. In a Reuters poll conducted last week, nearly half of registered voters named the cost of living as the most important factor in their vote, while 71% disapproved of Trump’s handling of the cost of living, compared with just 22% who approved.
Political science literature suggests those perceptions matter during midterms. Political scientist Edward Tufte famously described the midterm vote as a referendum on both the president’s performance and his administration’s management of the economy. His seminal 1978 study, examining elections from 1938 through 1970, found that changes in presidential approval and voters’ real purchasing power were strongly associated with the national vote received by the president’s party.
What makes the bond market such a peculiar adversary heading into an election is that investors are not only adjudicating on inflation or the Fed. They are also confronting an enormous supply of government debt and questioning whether Washington has the political will to stabilise it. “I don’t think anyone doubts the economic capacity of the United States,” Kaplan said. “It’s more this question of political will.” The austerity options available, such as cutting spending, reforming entitlements or raising taxes, are measures politicians are reluctant to embrace before an election.
America’s reserve-currency status gives Washington more time than most countries to resolve that conflict, Kaplan said, but not indefinitely. He cautioned that this is far from a US debt crisis or a repeat of the Liz Truss affair in Britain, describing the current move more as a market nod to policymakers than an immediate act of discipline. “Markets are giving a check,” Kaplan said. “The market’s kind of saying, okay, we’re concerned about inflation. We’re concerned about the economy. People are concerned about affordability. It’s a check: okay, what’s being done about it?”
