Bond Market Shows Signs of Life Under Trump

6 months ago John Abercrombe Comments Off on Bond Market Shows Signs of Life Under Trump

In a month’s time, the once-stodgy bond market has become the most electrifying game on Wall Street.

Aside from a few brief interruptions, the trend of steadily declining bond yields had persisted since the Great Financial Crisis of 2007-2009 as the Federal Reserve and other large central banks pushed aggressive bond-buying programs to try to boost faltering economic growth.

Bond Market Yield

Now, for the first time since the summer of 2013, the yield trend appears to be unraveling, thanks in part to President-elect Donald Trump’s unexpected victory. On a total-return basis, November was the worst month for Treasurys since December 2009 and because yields rise as prices fall, the benchmark 10-year yield gained more than 50 basis points this month, rising to 2.366% on Wednesday. By comparison, the 10-year touched an all-time low below 1.4% in July.

Traders, and most analysts, had imagined bond market status quo under a victory by Trump rival Hillary Clinton, even with a position shift already underway at the Fed toward removing at least some accommodation. Sooner than expected, however, Trump is forcing bond traders to grapple with a new slate of uncertainties. The most prominent among them is whether he can implement his ambitious fiscal agenda that includes tax cuts, a massive infrastructure spending plan and increasing tariffs.

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