Bond market jitters start to weigh on post-Trump rally

Yields on the USA 10-year Treasury notes climbed to their highest since January on Monday at 2.28 percent, while 30-year paper reached 3 percent.

Bond yields are up in the eurozone’s financially stressed countries, such as Italy, Spain and Portugal and the moves have been quite pronounced over the last few days. Markets in Southeast Asia fell, with Indonesia’s benchmark down 2.2 percent.

Bonds extended their price drop and yield gain after remarks by European Central Bank Vice President Vitor Constâncio at an event on Monday, according to Pissouros.

While bond yields around the world are being propelled higher, ANZ cautions that it may be hard for the move to be sustained in the absence of concrete policy announcements from Trump.

Although some reports referred to this as a “global bond rout” as the prices of those assets fell, observers note that rising bond yields are good for pension funds.

The dollar has been on a tear since the shock victory of Trump in the United States presidential election on November 8 triggered a massive sell off in Treasuries.

Trump, who beat Democratic rival Hillary Clinton, campaigned on tax cuts, trade restrictions and a $1 trillion boost to infrastructure spending. He reiterated the priority to create jobs in a wide-ranging interview with CBS “60 Minutes” aired Sunday night.

TRUMP FACTOR: Stock investors have largely reacted positively to the prospect of a Trump presidency. This should boost growth and in turn inflation.

Further spooking bond investors, large fiscal stimulus typically requires a rise in government bond issuance for funding.

There has been an increase in USA 2-year yields to touch the 1.00% level for the first time since early January.

The sell-off has pummeled emerging markets and yields have soared in Mexico, Brazil and Argentina.

China’s yuan lost another third of a percent to fall to its weakest since before the launch of its offshore market in 2010, while the yen and the euro both sank by nearly another full percentage point to multi-month lows. Portuguese yields rose to 3.58%, the highest since June. While developed world equities rallied on Monday, emerging markets continued to weaken, knocked by a strengthening U.S. dollar and fears over trade protectionism.

The result was a surge in inflation expectations.

The greenback rallied to a 5-month high of 107.65 against the Japanese yen, up by 1 percent from Friday’s closing value of 106.59. “The cracks have been forming for five years – we’re in this slow-grinding higher phase in yields”, he said. It fell $1.25 on Friday to $43.41 a barrel.

While the outlook for inflation is picking up, costs have yet to match the Fed’s target. Fed Chairwoman Janet Yellen signaled last month that she would tolerate inflation running a bit hotter than 2% in order to fulfill its inflation mandate. Market sources say that the selling on Monday was not quite as heavy, but Irish bonds prices continued to weaken in line with global markets. Here’s why: In recent months, a main argument for buying stocks has been that equities provide regular dividend payments that are much higher than yields on benchmark government bonds.

The Australian dollar, often used as a proxy for EM currencies, had held up due to higher commodity prices and the improvement in risk sentiment in the sharemarket, Mr Catril said.

The selloff wiped a record $1.2 trillion off the value of bonds around the world last week when Trump was elected US president. The odds were 81% last week.

Adam Slater of Oxford Economics said: “The US election has prompted a sharp re-pricing of many financial assets, based on expectations of a significant shift in US fiscal policy”. JPMorgan Chase picked up 2.82 dollars, or 3.7%, to 79.51 dollars.

The rise “may hurt economic growth”, he said.

“People are repricing the Fed on the basis of that so it all seems to be a relatively straightforward”.