Bonds around the world headed for their steepest two-week loss in at least 26 years as President-elect Donald Trump sends inflation expectations surging.
The Bloomberg Barclays Global Aggregate Index has fallen 4% in the period through Thursday. It’s the biggest two-week rout in data going back to 1990. Federal Reserve Chair Janet Yellen contributed to the decline by saying Thursday that an interest-rate hike could come “relatively soon.”
“We’ve seen a sharp and swift move since the election, which is pricing in the potential future policies of Trump,” said Sean Simko, who manages $8 billion at SEI Investments Co. in Oaks, Pennsylvania. “The big question is to what extent these policies are going to be implemented, and how quickly are they going to be implemented.”
Treasury 10-year note yields fell two basis points, or 0.02 percentage point, to 2.28% as of 9:34 a.m. in New York, according to Bloomberg Bond Trader data. The yield touched 2.34%, the highest since December, and has risen 0.5 percentage point since Nov. 4. The 2% security due in November 2026 was at 97 17/32.
“Trump is a game changer,” said Park Sung-jin, the Seoul-based head of investment at Mirae Asset Securities Co., which oversees $7.6 billion. “I was bearish, but the current level is more than I expected.”
The sell-off has gone fast enough that it’ll probably pause before yields press higher in 2017, Park said.
Yellen, addressing U.S. lawmakers Thursday, signaled that the U.S. central bank is close to lifting interest rates as the economy continues to create jobs at a healthy clip and inflation inches higher.
The president-elect’s pledges include tax cuts and spending $500 billion or more over a decade on infrastructure, a combination that’s seen as spurring quicker growth and price gains in the world’s biggest economy. Trump has also blamed China and Mexico for American job losses and threatened punitive tariffs on imports, a move that may spur inflation.
The difference between yields on U.S. 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, rose to as much as 1.97 percentage points this week, the highest since April 2015.
Ten-year Treasury notes will yield from 2.5% to 2.75% a year from now if Trump pushes through his proposed tax cuts and fiscal-spending policies, said Michael Kushma, chief investment officer for global fixed income at Morgan Stanley Investment Management.
A strengthening dollar and Trump policies that curb trade may hurt growth and limit the increase in yields, Kushma, who helps oversee $406 billion, said in an interview in Singapore.
“We’re still worried about rising U.S. yields,” he said. “In the short term, we think they’ve peaked. They could easily go up again.”