As we go nearer to the polls for U.S. Presidency election on November 5, it’s looking more and more likely for a return of Donald Trump to the White House with voters looking for change in the two key electorate concerns of immigration and the economy, whereas Harris is seen largely as extending the policies under the Biden era.

As a result, financial markets are pricing in more and more of what is known as the Trump trade with 10-year yields rising to above 4.2%, the highest since July.  That rattled interest rate-sensitive sectors like REITs in Singapore in a typical tumultuous October month, seasonally a volatile month for stocks, as bets for more Fed rate cuts start to come off.

The Trump trade refers to how widespread tariffs advocated by Trump, especially in event of a red sweep (Republicans winning both in the House and Senate), will create inflationary pressure forcing the Fed to dial back on its rate cut plans. Of course, the Trump trade also relates to share prices of many other companies which will likely do well under a Trump administration from oil companies, Truth Social media company, to X and Tesla where Elon Musk has become the most outspoken proponent of Trump.

On top of potential inflationary pressure, yields have also been rising steadily which unnerve financial markets as economic plans laid out by both Presidential candidates will lead to further ballooning of U.S. deficit. The nonpartisan Committee for a responsible Federal Budget has projected Trump’s plans will add US$7.5 trillion to the deficit, almost twice as much as Harris’s US$3.5 trillion.

If Trump indeed returns to power, one thing for sure, it will make the job of the Fed Chair Jerome Powell all the harder given the unpredictable nature of his policies and what’s going to happen globally.  If that’s the case, will there be more or less monetary easing from the Fed? Will inflation reverses course and start to go in the wrong direction?

Though the market is pricing more inflation and less cuts, I think the jury is still out on that as tariffs, leading to uncertainties and headwinds for the economy, was the exact reason for Fed to enact up to three “insurance rate cuts” back in 2019.

How will mortgage rates here move in relation to a potential Trump win?

Two years ago, most clients think rates will stay “higher for longer” which was the consensus view put out by most analysts and politicians.  Few would have envisaged mortgage rates falling by almost half from its height of over 4.25% (2-year fixed mortgage rate) at the start of 2022 to the current 2.5% rangebound, especially after Fed went big with a 50-basis points rate cut last month in September.

In light of that, if I were to ask you – are you so certain that prevailing mortgage rates will not drop back to historical lows of 1.5%, swing back up to 3.5%, or simply just trend sideways at 2.5% pretty much going into 2025 and further into 2026?

The point I’m making is no one can say for sure what’s going to happen, including who’s going to be the next U.S. President.  Never say never.

Having been in the mortgage advisory business since 2014 with this year being our 10^th year anniversary, we’ve been around long enough to watch the many twists and turns on interest rate in just the last decade alone.  Still, it will be interesting to watch how the interest rate cycle pans out going into 2025.

All I can say is, notwithstanding all the consensus viewpoints put forth and how the market is voting essentially for a Trump win, the curve has largely stayed predictable through the last 30 years – what goes up will come down in almost symmetrical fashion.

We’ve not seen the curve take on any other patterns or shapes thus far.

Still, never say never.

Take an intelligent bet on fixed versus floating home loan rates by speaking to our team of mortgage strategists today.

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