While equities have mostly erased their early losses today following Donald Trump’s unexpected victory last night, the bond market has not been so lucky.
Interest rates are flying higher this morning as investors dump Treasuries on renewed hopes of a December rate hike — and possibly more subsequent hikes as well. Donald Trump has repeatedly said in the past that the Federal Reserve hasn’t been doing its job properly, and the President-elect may now have the necessary influence to force the Fed’s hand.
10-Year Treasury yields surged a massive 11.5 basis points, to six-month highs of 1.976% on the back of Trump’s election. Despite her reluctance to comment on such matters, Hillary Clinton had been seen as much more dovish and accommodative in terms of interest rate policy, while Trump was publicly quite hawkish.
Trump had also claimed recently that the Federal Reserve was keeping rates low prior to the election in an effort to help Clinton’s campaign. While that claim is far-fetched, it doesn’t seem unlikely that Trump could flex his newfound political muscle to help influence rates higher.
Bond investors will want to keep a close eye on these developments over the coming days to see if this initial shock is a one-time event, or if longer-term bonds are at serious risk for big principal losses.
The iShares Barclays 20+ Year Treasury Bond ETF (NASDAQ:TLT) fell $3.12 (-2.40%) to $126.97 in Wednesday morning trading. Year-to-date, the largest fund tied to long-term Treasuries has gained 5.31%.