Bigger budget deficits and possibility of quick inflation raided the yields of Treasury bonds. The United States dollar also went up to its 11 month high against a currency basket. Dow Industrials led the high on Wall Street, on anticipation of weaker consumer protections and flexible regulations. The technology sector, however, pushed the indexes to negative territory.
Bonds and stocks
The flow of money away from bonds has witnessed 30 year yields putting up a steepest weekly increase from January 2009. For 10 year bonds, the move of 50 basis points is equal to two interest rate hikes. For the market, it has incorporated a 77 percent incidence of an increase of 25 basis points at the December meeting of the Federal Reserve.
Bank stocks led Wall Street. The strongest among them was S&P 500 bank index. The latter touched its highest point since March 2008. The slid in the largest technology companies, which also have the biggest market capitalizations, dragged the Standard & Poor 500 into negative territory. The DJIA org Dow Jones Industrial Average went up 0.09 percent or 16.27 points.
The American dollar got a massive fillip post the Trump victorious US Presidential election. The Treasuries had a huge selloff just after the election results were announced. According to Christopher Vecchio of FXCM New York, the dollar enjoyed a massive rise due to better yields. For the markets, it was a wakeup call. Yields on 10 year Treasury Notes issued by the United States went up to their highest level since December, clocking 2.302 percent US10YT=RR even as 30 year paper went up 3.06 percent, the steepest since December.
Even though early trading in the US saw moderate sells, analysts does not foresee any end for lower movement in the bond prices and higher yields. If one goes by the opinion of Tom Simons of Jefferies and Co, the bond values has reached their peaks. He said that if one believes Trump's campaign promises, then the future will have a relaxed fiscal policy, lower taxes and higher spending. The rant about immigrants means a stricter immigration policy. It means that there will be a tight labor market in the future. All of these ramps up to an extremely high inflation environment. In short, high inflation in the future is more than likely. This is important as bond prices are hurt by rising inflation. Interest payments in the future are worth less.