From Tyler Durden: “I’ve never seen anything like it,” exclaimed one veteran bond trader shocked at the ongoing carnage across the global bond market today.
10Y Treasury yields just topped 2.10% for the first time since Jan as inflation expectations explode higher post-Trump. Italian bonds are getting crushed, Bunds, Gilts, and JGBs all seeing yields spike as developed market bond yields hit 6-month highs and the US yield is at its steepest since 2015.
Global Developed Market sovereign bond yields are at 6-month highs…
As Reuters notes, a key market measure of long-term U.S. inflation – the five-year, five-year forward – rose to 2.38 percent, its highest since July 2015. The European equivalent rose to a level last seen in late May at 1.4890 percent. “When we think through the possible implications of some of Trump’s proposals which have to do with increasing tariffs, the most immediate implication is increasing prices – which is inflation,” Michael Hasenstab, CIO of Templeton Global Macro, said in an emailed statement. The rise in yields also came after a poorly received U.S. 10-year auction on Wednesday, which has the lowest bid-to-cover since March 2009. Analysts said bond markets were also showing nerves over how an auction of 30-year U.S. bonds on Thursday would fare.
Which has pushed US Treasury yields back above 2.10% for the first time since January… 2.27% next? YTD unch.
The long-bond is down 5% in price since Florida, Florida, Florida…
and the yield curve has steepened massively, now steeper on the year…
And across Europe it’s a bloodbath…
Italy’s 10-year government bond yield rose to its highest level in a year on Thursday as Donald Trump’s shock victory in the U.S. presidential election raised concerns about a looming Italian referendum.
The referendum on constitutional reform is set for Dec. 4 and is shaping up as the next big risk event for the eurozone, with Italian prime minister Matteo Renzi earlier this year saying he would resign in the case of a referendum defeat. Italian 10-year bond yields rose to a one-year high at 1.795 percent IT10Y, up 5 basis points on day, according to Reuters data. The gap between yields on similarly-rated Italian and Spanish bonds ES10Y — seen as a bellwether of political risk — was near its highest level since the 2012 debt crisis at 49 bps.
And while many are pointing at Trump’s fiscal policy driven growth outlook as the driver, we wonder… is this just the Chinese dumping Treasuries as they fear for the future value of their dollars?
The iShares Barclays 20+ Year Treasury Bond ETF (NASDAQ:TLT) fell $0.18 (-0.14%) to $124.39 per share in Thursday morning trading. Year-to-date, the largest fund tied to long term U.S. bonds has gained just 3.16%, and is now nearly $20 off its yearly highs.
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