“We know very little about Trump’s economic policies, but a fiscal stimulus through tax cuts and infrastructure spending seems likely”. A significant rise in inflation, or reflation – if it comes – would mark a sea change for markets.
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“Yields are driving moves and are driving everything we’re seeing in the markets, and as long as they continue to rise you’ll see dollar/yen rise”, said Kathy Lien, managing director of BK Asset Management.
Higher inflation tends to depress bond prices, which move inversely to prices.
European Central Bank rate setters said on Wednesday they were prepared to respond to any economic shock from Trump’s election.
The long-bond is down 5% in price since Florida, Florida, Florida…
That means Federal Reserve policy makers may act more swiftly to raise borrowing costs than they have in 2016, when they held off time and time again after increasing their target rate to a range of 0.25 percent to 0.5 percent in December 2015.
Italian 10-year bond yields added nine basis points to 1.84 percent, and those on Spain’s climbed seven basis points to 1.35 percent.
Billionaire investor Stan Druckenmiller said in an interview on CNBC Thursday he’s short bonds globally in a bet on rising interest rates.
In the two days after the election, Treasurys, which fare worse under higher inflation, have fallen sharply.
Star bond investor Michael Hasenstab said global markets’ reaction to the U.S. election outcome showed that U.S. Treasuries had been in a “bubble that was shocked” and predicted rising inflation and higher yields ahead.
“There is about a 40% chance-intuitively speaking-that we get 2.0% on the USA 10-year note by Friday”, said Richard Hastings, macro strategist at Seaport Global.
Which has pushed US Treasury yields back above 2.10% for the first time since January… The net rise of 21 basis points was also the largest daily increase since July 2013.
Thursday’s selling has been pretty well dispersed with yields up between 4 and 5 bps across much of the curve. Flattening curves often indicate a weaker outlook for growth and inflation, while steeper curves suggest the opposite. Italian bonds are getting crushed, Bunds, Gilts, and JGBs all seeing yields spike as developed market bond yields hit 6-month highs and the USA yield is at its steepest since 2015. Bonds across the developed world have been on a near-uninterrupted bull run for 35 years, and some analysts say this year is the turning point. “If we are now seeing a shift in the USA, then that means markets will have to reprice this”.
The high yield for the 10-year note came in at a higher-than-expected rate after the bid deadline.
This is already filtering into related sectors and companies across global equity markets.
He noted that a key market barometer of 10-year inflation expectations had jumped to a 16-month peak of 1.87 percent.
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“We expect a Trump Treasury to elevate the importance of the bilateral trade surplus with the U.S.in identifying currency manipulators and intensify pressure on trade partners to allow currencies to appreciate”, Tim Condon, an Singapore-based economist at ING, said in a report.
