Euromoney, is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023
Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement
CAPITAL MARKETS

Bond market shoots first, asks questions later

The election of Donald Trump prompted a vicious sell-off in global bonds. Investors face the new year with warnings over volatility and inflation ringing in their ears. Will it be as bad as they think?

Smoking gun finger-600

Working in the bond markets can be pretty exhausting. If a burned out trader had decided to take a year-long nap on December 1, 2015 with the 10-year US treasury at 2.24%, he or she would have woken up on December 1, 2016 with the UST 10-year at 2.34%. So, nothing much happened last year, right?

Wrong. So much happened it is hard to know where to start. While our bond trader was sleeping, the UST 10-year hit an all-time low of 1.50% in July 2016, the UK voted to leave the European Union and the US elected a reality TV star as its next president. With this as the backdrop, looking forward into 2017 is a fool’s errand – quite clearly anything can happen.

By mid-December, the global aggregate bond index had lost $2.4 trillion of market value since Trump’s election, suggesting that his proposed fiscal stimulus will translate into almost immediate growth and inflation.

Rajan_Arvind-160x186

Arvind Rajan,
PGIM Fixed Income

“It is hard for the markets to price in the protectionist agenda, so they have priced in Trump without the bad stuff,” says Arvind Rajan, head of global and macro at PGIM Fixed Income in New York.