Speculation that US President-elect Donald Trump’s policies will boost spending and accelerate inflation has erased more than $1 trillion from the value of bonds around the world, according to a report from the Globe and Mail
A global bond-market index saw a one-day drop in capitalization of $450 billion, with a four-day total loss that exceeded $1 trillion for only the second time in two decades, according to Bank of America Merrill Lynch data. Over the same period, global stocks gained $1.3 trillion, and yields on 30-year US treasuries jumped the most since January 2009.
Bank of America’s Global Broad Market Index, which tracks more than 24,000 bonds worldwide, saw its market value sink by $1.14 trillion. The US 10-year note rose by 37 basis points in four days, while yield on 30-year securities went up by 39 basis points.
European government bonds experienced an extended selloff, with Italy’s 10-year bond yield exceeding 2% for the first time since Sept. 2015 and Germany’s showing the highest yield since February.
“The strong bias toward fiscal expansion and inflationary policy [under the Trump administration] represents a stark change to the malaise of recent years,” said Adam Donaldson, head of debt research at Commonwealth Bank of Australia. “This opens the door for the Fed to hike in December, but also more quickly in 2017 and 2018 than previously expected.”
Data compiled by Bloomberg had previously indicated a 76% chance of a December rate hike from the Fed, but the election result has bumped the odds up to 80%. The forecast has slashed demand for US debt, triggering selloffs with bid-to-cover ratios of 2.11-2.22, uncharacteristically low for such auctions.
“There are many risks with Trump still somewhat of an unknown,” said Alex Stanly, a senior interest-rate strategist at National Australia Bank Ltd. “The risk is that U.S. long-end yields will rise further and the curve will continue to steepen as the market grapples with the prospect of increased fiscal spending.”
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