Global Bond Selloff Resumes Amid Inflationary Outlook

Bond prices around the world gapped lower for the second consecutive day following the conclusion of the US presidential election.  After recording the largest one-day increase in rates since July 2013 yesterday (+20bps), the yield on 10-year Treasury notes continued to move higher, rising more than 8bps to just above 2.13% today.  The 30-year Treasury yield also jumped by more than 9bps today, touching higher than 2.94% after notching a rate jump on Wednesday that had not been seen in more than four decades.  Overall, yield curves worldwide continue to see rates rise and the curves steepen as fixed income markets speculate on higher inflation resulting from additional US fiscal stimulus plans under Donald Trump.  The spread on 2- vs. 30-year U.K. gilt yields touched its highest mark since Brexit (180bps) while the spread on similar term German bund yields widened to 154 basis points, its largest differential since March.      

The Dow Jones Industrial Average continued its impressive move higher post-election, rising over 200 points to another record high.  Once again, bank and pharmaceutical stocks generated the largest gains on the day as investors envisioned a potential regulatory reduction in the upcoming Trump term helping those two industries most dramatically.  Financial shares have now gained more than 10% on the week, reaching levels last seen back before the onset of the financial crisis.  Industrial shares similarly rose today on the expectation of the increased infrastructure spending mentioned by Trump during many of his campaign and post-election speeches.  Industrial metal futures correspondingly jumped with the prospect of a boost in construction.  Copper prices recorded the largest two-gain since October 2011.     

Aside from the election buzz, economic data released today displayed a drop in weekly filings for unemployment.  The number of initial jobless claims for week-end November 5th was reported at a seasonally adjusted 254,000, below median forecasts of 260,000 and lowering the four-week average to 259,750.  The sub-300,000 reading for the 88th straight week is consistent with the lowest levels the US has seen over the past forty years.  The continued strength in the jobs market adds further evidence to support a December rate hike by the Fed which currently carries a probability of over 75%.      

Major U.S. stock markets were mixed at the close, with the DJIA finishing up 1.15%, S&P 500 just above even, and Nasdaq down 0.75% as tech stocks tumbled.  Treasury yields/swap rates rose 3-11 bps across the curve in a continued bear steepening pattern.  The International Energy Agency released a report today highlighting increased production from OPEC members, resulting in WTI crude prices falling 1.8% to $44.45/barrel and Brent crude trimming 1.45% to $45.70/barrel.

Have a great (long) weekend. The U.S. bond market is closed tomorrow for Veteran’s Day.