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A wave of selling sweeping across bond markets resumed on Monday as investors continued to digest the impact of a Donald Trump presidency.

US and European bond prices have sunk in expectation that he will enact inflationary policies that speed the pace of interest rate rises.

On Monday, some bond yields - which rise as the price falls - hit their highest for more than six months.

Bonds globally lost $1.29tn (£1tn) last week, according to Bank of America.

And there is no sign that the bond sell-off is easing, depressing the value of some pension investments and making it more expensive for countries and companies to borrow money.

On Monday, the 30-year US Treasury jumped above 3% for the first time since January. In the UK, the 10-year gilt yields returned to levels not seen since June's Brexit referendum vote. And German 30-year bunds rose above 1% for the first time since early May.

Italian bonds have been among the most affected. Rome's 10-year yields rose four basis points to 2.01% on Monday, their highest in 14 months.

"It is a continuation of this recent trend. There are still these expectations that inflation could go up if the US takes a more expansionary fiscal stance," said DZ Bank strategist Daniel Lenz said.

Jim Cielinski, head of fixed income at Columbia Threadneedle, said the sell-off trend was not surprising, but the "ferocity of the reversal" was.

And in a research note for Societe Generale, analyst Daniel Fermon said that rising interest rates may not be a good thing.

"As central banks are now less active in the bond market and Trump expects to cut taxes and launch a $1tn infrastructure investment plan, increasing the deficit, we believe rising US long-term rates remain a major risk for financial markets," he said.

Dollar strength

Investors had piled into bonds, seeking a safe - but low - rate of return during what has been years of sluggish growth in the US, Europe and Japan.

Image copyright AFP Image caption Donald Trump's win has raised much speculation about how the US-China relationship could change

But since inflation and interest rates are seen as likely to rise, investors are seeking assets with a more attractive return. With a Trump administration promising economic stimulus through spending and tax cuts, investors are worried about putting money into low fixed-payment assets, such as bonds.

That has fuelled share markets since last Wednesday's election result.

Wall Street's Dow Jones index closed at another record high on Friday, in the wake of Mr Trump's unexpected victory. European markets have also risen, and at midday on Monday, the FTSE 100, Cac-40 and Dax were all slightly higher. Earlier, Japan's Nikkei index hitting a nine-month high, closing up 1.7%.

Andrew Walker, BBC World Service economics correspondent

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. Rising government borrowing costs were one of the central features of the region's financial crisis. So are we are looking at a re-run?

There are three important differences to keep in mind. Those borrowing costs are still well below crisis levels. At the time, a rule of thumb for whether a bailout was needed was ten-year government borrowing costs of more than 7%. Italy has just gone over 2%, Portugal is 3.5%. And it's happening to them all.

Even ultra-safe Germany has seen its government bond yields rise, although they are much lower than Italy's. And the impetus is coming from outside, from political events in the US. Still, it is clear that Europe still has its weaknesses, especially in some countries' banks - Italy and Germany's Deutsche Bank most notably.

The dollar has also strengthened against major currencies. The pound fell 1.1% to $1.2464. Currencies in many emerging markets - from the Mexican peso and Malaysian ringgit, to Turkey's lira and South African rand - fell on fears that protectionism and higher US interest could suck investment from these markets.

"Clearly the market has settled on a 'buy dollar' theme, on the basis there will be a debt-fuelled US fiscal binge that will push up inflation," said TD Securities' European head of currency strategy Ned Rumpeltin.

"There are signs that higher bond yields and the knock of a stronger US dollar are having a domino impact, taking down the weakest risky assets first, before moving on to the next," said Deutsche's global co-head of foreign exchange, Alan Ruskin.

And a senior European Central Bank (ECB) official has warned that the uncertainty caused by sudden swings in the financial markets threatened economic recovery.

Speaking in Frankfurt on Monday, ECB vice-president Vitor Constancio said: "We should be cautious in drawing hasty, positive conclusions from those market developments, because they may not necessarily indicate that the world economy will have an accelerating recovery with higher growth."</s>Irish and other European government bonds fell in early trading on Wednesday as investors continued to fret about the impact of Donald Trump’s victory in the US presidential election.

The move sent the market interest rate, or yield, on the Government’s benchmark 10-year bonds up to 0.965 per cent. This compares with 0.907 per cent at the end of trading on Tuesday, when bonds globally staged something of a relief rally from a massive sell-off since the US vote.

Mr Trump’s victory triggered routs in global bonds and emerging markets, while boosting the dollar and industrial metals on speculation his infrastructure spending plans will spur inflation and prompt the Federal Reserve to speed up the pace of US interest-rate increases.

“Things might have got a little bit overdone with the market having got very excited about reflation and what it’s going to mean,” said Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington. “Most of the sharp adjustment is behind us now and from here you’ll need to see tangible evidence of some of those policy moves.”

European shares were mixed on Wednesday, with the Iseq index dipping by 0.06 per cent to 6,255, while the FTSE 100 in London fell by 0.1 per cent and the pan-European Stoxx 600 edged 0.23 per cent higher.

Wall Street shares rose on Tuesday, with the Dow Jones Industrial Average registering its fourth consecutive record high close as technology stocks rebounded from a post-election battering and energy stocks were boosted by a sharp rise in oil prices.

While volatility in financial markets is easing, US monetary policy remains high on investors’ minds. Fed Governor Daniel Tarullo said Tuesday an interest-rate rise next month is more likely than before, and market futures imply a 94 per cent probability of an increase. Fed Presidents James Bullard, Neel Kashkari and Patrick Harker are all scheduled to speak Wednesday and may shed more light on the likely trajectory of borrowing costs in the world’s biggest economy.</s>Not many people – this columnist included – believed Donald Trump’s assertion that stocks would “go great” if he was elected president.

But go great they did, the S&P 500 last week enjoying its best week of 2016. Who saw it coming? Previously, market movements consistently indicated fear of a Trump victory. Ray Dalio’s Bridgewater – one of the most successful hedge funds in history – predicted the Dow Jones could suffer a one-day, 2,000-point plunge. Instead, the initial sell-off was met with a wave of buying that drove indices to all-time highs.

Clearly, investors were relieved by Trump’s conciliatory victory speech. Rather than implementing his wilder proposals, the hope is he will be, as he said last May, “totally flexible on very, very many issues”. Markets like the traditional Republican agenda of tax cuts and deregulation as well as Trump’s promises regarding infrastructural spending and fiscal stimulus.

Additionally, pessimistic sentiment, defensive positioning, high cash levels and technically oversold conditions going into a seasonally strong period meant stocks were ready to rally. Markets like to wrongfoot investors; as Société Générale noted, markets operate on a principle of “buy the rumour, sell the news or, in this case, sell the rumour and buy the news”.

Still, markets are acting like Trump will deliver on all his “good” promises but break all his “bad” promises. That’s naive. Acting presidential after winning is one thing, but how will this inexperienced, narcissistic president behave in bad times? Investor behaviour is reminiscent, as the Economist’s Buttonwood columnist noted, of those “who marry a spouse with a doubtful temperament on the grounds that he or she will change after the wedding”.

It pays to buy the dips in a bull market but investors are deluding themselves if they think there will be no dips. Political risk has not gone away.

StockTake has often warned of the dangers of mixing investing and politics, citing research showing Republican investors underperform during Democrat administrations and vice-versa. Disappointed investors become pessimistic regarding the economy and the stock markets, and it costs them.

This phenomenon was all too obvious last week. In an open letter to his daughter, West Wing writer Aaron Sorkin wailed about economists “predicting a deep and prolonged recession” and how the Dow Jones had “dropped 7,000 points overnight”. If true, that would have a fall of almost 40 per cent; in reality, the Dow was never down more than 5 per cent.

Sorkin’s imaginings may have been fuelled by Nobel economist Paul Krugman. “If the question is when markets will recover, a first-pass answer is never,” said Krugman, who warned of a “global recession, with no end in sight”. A day later, Krugman rowed back somewhat, saying he was “having some second thoughts” about his global recession call.

Consternation regarding Trump’s victory is understandable, but one point bears repeating: don’t let your politics colour your investment outlook.

First Brexit, now Trump. Last week’s surprise result was “another brutal come-uppance” for the pollsters and the data-driven approach relied upon by the investment community, said CNBC .

The “faith” with “hard and big data is very misplaced”, tweeted “media futurist” Tom Goodwin, adding: “Feel things.”

“The reason they [forecasters] do not know anything is clear,” said the left-leaning Current Affirms magazine. “They are absolutely obsessed with empirical data.”

Actually, the polls, as FiveThirtyEight’s Nate Silver noted, were not that far out. Clinton won the popular vote, just not by as much as expected. The polls were out by about two percentage points – more accurate than in 2012 and “right in line” with historical averages. If one out of every 100 voters shifted from Trump to Clinton, Silver added, the polls would have been spot on, correctly predicting the result in 49 of 50 states.

Polling and forecasting models are imperfect – the latter got Brexit badly wrong – but there is no alternative to empiricism. People and markets are unpredictable, but too much weight shouldn’t be placed upon occasional surprises. Investors should remember that being “obsessed with empirical data” is a good thing, and infinitely preferable to those who like to “feel things”.

Investors have long been prone to knee-jerk sell-offs. The dangers of panicking seem more marked today than ever before, given how quickly markets are inclined to rebound.

During this eight-year bull market, sell-offs have been short and sweet. Investors have been conditioned to buy every dip, assuming central bankers will ride to the rescue in the event of trouble. The Brexit panic was over within days; last week’s Trump panic was over within hours.

Investors who panic are not getting a chance to rectify their mistake. The solution? Don’t react, says Bespoke Investment Group. Sleep on it, and heed this old piece of market advice: nothing good ever happens in after-hours trading.</s>Everyone is trying to comprehend just how much the world has changed last week, including Wall Street traders.

In the days after Donald Trump was elected U.S. president, stock markets had their best week in two years and bonds suffered more than $1-trillion (U.S.) of losses. The main narrative behind the move was that Mr. Trump would spend more money to build roads and bridges, generally spurring growth and long-awaited inflation. That’s good for stocks and bad for government bonds.

Mr. Trump certainly changes the game in many ways. But he can’t change the fundamental backdrop of slowing global growth overnight, and basic investing principles still apply. While investors seem to have thrown caution to the wind as they plow into equities, at some point they’re going to turn around and like bonds again.

That point may come sooner than many think. 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. But that dynamic is shifting rapidly.

It makes sense to buy stocks that pay an earnings yield of 5.1 per cent rather than 10-year Treasuries that pay just 1.36 per cent. But what happens when those U.S. government bonds have a 2.2-per-cent yield and more safety than a basket of expensive stocks? Suddenly they become more attractive. Meanwhile, the S&P 500’s earnings yield is falling quickly as stock prices rise. Now, investors stand to earn the least amount of extra income from owning U.S. stocks relative to benchmark Treasuries in almost three years.

The question now is when will this stock-bond dynamic reach a tipping point, prompting a rush of money back into debt and out of equities. The calculation depends on many unknowns, such as the size of Mr. Trump’s stimulus plan and how he will pay for it. While almost everyone is predicting higher U.S. consumer prices, it’s unclear how quickly they’ll rise or whether paycheques will rise in tandem. Meanwhile, foreign investors seem to be among those temporarily boycotting U.S. debt, and it’s unclear how quickly they’ll come back.

But money is money. Investors will want safety. Eventually, bonds will look good again, especially compared with increasingly expensive equities.</s>The fallout from Donald Trump’s election to the US presidency eased off in financial markets with benchmark Treasuries and emerging-market assets rebounding as a dollar rally ended.

The yield on US bonds due in a decade fell from this year’s high and German notes snapped a six-day slide. Japanese debt fell after an auction, pushing the 10-year yield to zero for the first time since September. Bloomberg’s dollar index was set for the first loss since Americans voted Trump in a week ago and MSCI’s gauge of shares in developing nations rose from a four-month low.

Trump won the November 8th presidential election after pledging to cut taxes, spend more than $500 billion on infrastructure and restrict imports. His victory triggered a record selloff in global bonds last week amid speculation the proposed fiscal stimulus will fuel inflation and prompt a faster pace of interest-rate increases in the world’s largest economy.

There is some skepticism that Trump’s proposals will be fully backed by Congress and technical indicators signaled many post-election moves in financial markets were excessive.”Risks are elevated, and we are expecting further increases in volatility as markets attempt to second-guess the policies that might eventually come out from the US,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney. “One of the challenges for markets is that all of these moves are not straightforward in terms of impact. In a lot of cases, we just have to see how things play out.”

Federal Reserve Bank of Richmond President Jeffrey Lacker said Monday that easier fiscal policy may require higher rates, but it’s too early for the central bank to react to potential policy changes by the incoming administration of president-elect Donald Trump.

Ten-year USTreasuries rose, pushing their yield down by six basis points to 2.20 per cent as of 8:05 a.m. London time. The 41 basis point jump over the last three trading sessions marked the steepest climb in more than seven years and the 14-day relative strength index for the securities indicated they were the most oversold since 1990.

Ford O’Neil, who oversees about $100 billion in bonds for Fidelity Investments, said the sharp run-up in yields following the election may not be justified given that Trump will face resistance from Congress in getting his fiscal stimulus plans approved.Japan’s 10-year bond yield increased to zero, having been negative for almost eight weeks, as a gauge of demand weakened at a sale of five-year securities on Tuesday.The yield on similar-maturity German bonds fell one basis point to 0.31 per cent, after doubling in the previous five sessions.</s>Fears about the inflationary potential of Donald Trump’s planned tax cuts and infrastructure spending have sent shock waves through the world’s bond markets, as investors take fright at the prospect of higher than expected interest rates in the years ahead.

Central banks are braced to suffer fresh losses on their vast holdings of government debt after the sell-off that saw $1tn wiped off the value of bonds last week intensified on Monday.

Bond prices fell for a sixth day running in the UK, pushing the yield on government gilts to their highest level since the weeks leading up to the EU referendum, and US bond yields reached levels last seen in December 2015. Bond yields, the rate of interest an investor gets, rise when bond prices go down.

The sell-off has been triggered by concerns about the impact of Trump’s economic policies when he arrives in the White House in January.

Share prices have risen since the US election on optimism that stronger growth will result in higher corporate profits. At one stage on Monday, the Dow Jones Industrial Average – which measures the value of the top 30 US companies – was up nearly 90 points at a new intra-day high of 18934 points.

The president-elect is promising tax cuts for both companies and individuals together with a $550bn boost to infrastructure spending in order to raise the US growth rate from 2.5% to 3.5% a year.

Financial markets, however, think the reflationary package will also push up the cost of living and force the Federal Reserve, the US central bank, to raise interest rates more rapidly than had been expected.

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. Markets now expect medium-term inflation and interest rates, consistent with a hefty fiscal stimulus.”

Slater said that the decline in bond prices evident since the summer had been intensified by Trump’s win. The total return on a 10-year US Treasury bond was down 7% in the past four months, comparable to the so-called “taper tantrum” of 2013, when global bond prices slumped on fears of higher interest rates from the Fed.



For the past eight years, central banks have held borrowing costs at record-low levels and used vast bond-buying programmes known as quantitative easing to pump money into struggling economies. Central bank buying has limited the supply of bonds and pushed up their price.



Since Trump’s victory over Hillary Clinton, bond prices have gone into reverse as investors contemplate a period of political uncertainty, a possible trade war between the US and China, and the risk that the world’s biggest economy will overheat.

David Marsh, the managing director of the thinktank Omfif, said: “Central bankers have worried for some time that an otherwise welcome international growth revival would depress inflated bond prices and confront central banks with substantial losses on government securities acquired during bond-buying sprees since 2009.

“Europe is particularly exposed, since the ECB started buying only relatively late, in March 2015, at a time when bond prices were already very high.

“A sharp rise in sovereign yields in Europe since Trump’s win last Tuesday, together with an increase in euro area inflation expectations to an eight-month high, will buttress opposition on the ECB’s governing council to an extension in ECB quantitative easing beyond March 2017.”

The yield on 10-year US Treasury bills has hit its highest level since January, rising to 2.23% from 2.1% last week. Shorter-dated two-year debt and long-dated 30-year bonds also hit their weakest points since the start of the year.



The knock-on effects from lower bond prices in the US have been felt in the UK and other European markets. Bond prices rose strongly in the UK after the Brexit vote as nervous investors looked for safe havens and anticipated that interest rates would be cut to boost activity. But the yield on 10-year gilts has tripled since the trough of 0.5% in early August.



Simon MacAdam, an economist at Capital Economics, said: “Treasury yields have risen sharply since the US elections, reflecting anticipation of a major fiscal stimulus under President Trump. But while we are nudging up our forecasts for government bond yields in Europe, we still don’t expect that they will rise as fast as in the US.”
The global bonds sell-off continue amid uncertainty over Donald Trump as stock markets continue to rise to record levels.