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Updated: 17:20 31/07/21

Global bond rout continues as volatility set to continue

By Duncan Richardson, News Editor

17 Nov 2016

Following Donald Trump’s stunning victory $1 trillion has been wiped off the value of the global bond market. The sell-off intensified on Monday following Trump’s pledge to increase spending on infrastructure in order to simulate the economy and bring jobs back to U.S.

Managed money is fleeing government bonds with investment managers reinvesting the proceeds into equities which are expected to benefit from Trump's spending program. The U.S. government debt is already approaching $20 trillion and, should Trump turn on the spending taps, inflation is expected to rise pushing down the value of existing bonds. The stampede to liquidate 30 year U.S. treasury notes has seen yields rise at its fastest rate since January 2009. The yield on a bond rises when demand falls.

Expectations of increased rates is causing the dollar to strengthen and putting downward pressure on the gold price. Yields on Spanish, Portuguese, French, German and Italian 10 year yields have all risen sharply, pushing up borrowing costs across the continent. The U.S. bond market is worth $37 trillion and is 2.6 times bigger than the U.S. equity market.

Trump’s election success was built on a campaign promising trade renegotiations, tax cuts, and a $1 trillion spending program. Donald Trump is untested and his unpredictable nature means that the impact of his proposed economic policies is still unknown.

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