The election of Donald Trump has brought bond market vigilantes out of the woodwork.
US Treasurys raced to solid gains on Election Day when Trump moved ahead in Florida, but heavy selling engulfed the complex as soon as it became clear that Trump was going to be the next US president, with the thought process being that Trump’s tax cuts and plans for massive infrastructure spending would finally do the one thing the Federal Reserve has been unable to do: spark the return of inflation.
Sellers remained in control on Thursday, and the market was able to take a breather Friday as it was closed in observance of Veterans Day.
Sellers, however, are back in charge on Monday. Heavy selling across the complex has yields higher by at least 8 basis points. Here is a look at the scoreboard as of 7:15 a.m. ET:
- 2-year +7.3 basis points at 98.8 bps 3-year +10.4 bps at 1.27% 5-year +11.2 bps at 1.67% 7-year +11.5 bps at 2.03% 10-year +10.2 bps at 2.25% 30-year +9 bps at 3.02%
Several notable developments have taken place amid Monday’s destruction. The two-year yield crossed the 1.00% threshold for the first time since January, and the 10-year is also at levels not seen since the beginning of the year. The 30-year yield is above 3.00% and at its highest level since early December.
All of this comes as the Fed prepares for its first interest-rate hike since December 2015. Fed fund futures data compiled by Bloomberg shows an 84% probability of a 25-basis-point rate hike at the Fed's December meeting.
It's not just the US where the bond vigilantes have surfaced. Heavy selling across Europe is having the biggest impact on Greece, where the government continues its efforts to receive debt relief from its creditors. Selling there has the benchmark 10-year yield higher by 19 basis points at 7.22%. In Italy, the 10-year is up 16 basis points at 2.18% as the Italian referendum draws near. On December 4, Italians will vote on whether the country should push ahead with reforms. A "no" vote would lead to the end of Prime Minister Matteo Renzi's career.
And in Asia, Korean yields spiked amid the fallout of the scandal that has engulfed President Park Geun-hye, who admitted to giving classified information to someone without clearance. Heavy selling in South Korea pushed the 10-year yield up 17 basis points to 2.11%. Elsewhere in the region, Japan's 10-year ended higher by 1.7 basis points at -2.2 basis points and is flirting with its first move above zero since February 2015.
