The capitalization of a global bond-market index slid by $450 billion Thursday, a fourth day of declines that pushed the week’s total above $1 trillion for only the second time in two decades, Bank of America Merrill Lynch data show. Global stocks gained $1.3 trillion in the same period. Yields on U.S. 30-year bonds, which are more sensitive than shorter maturities to the outlook for inflation, jumped the most this week since January 2009.
European government bonds extended their selloff Friday, with the yield on Italian 10-year securities climbing above 2 percent for the first time since September 2015, while benchmark German 10-year bunds declined for a fifth day, pushing the yield to the highest since February.
“We do view the election of Donald Trump as a game changer,” said Adam Donaldson, head of debt research at Sydney-based Commonwealth Bank of Australia. “The strong bias toward fiscal expansion and inflationary policy represents a stark change to the malaise of recent years. This opens the door for the Fed to hike in December, but also more quickly in 2017 and 2018 than previously expected.”
The market value of Bank of America’s Global Broad Market Index, which tracks more than 24,000 bonds around the world, has slumped by $1.14 trillion this week to $48.1 trillion. The only previous week it fell by more than $1 trillion was in June 2013, when the Federal Reserve under Chairman Ben Bernanke was threatening to reduce debt purchases, leading to a bond selloff that became known as the “Taper Tantrum.”
The benchmark U.S. 10-year note yield has jumped 37 basis points this week through Thursday. Treasuries are closed worldwide Friday for U.S. Veterans Day holiday. The yield on 30-year securities climbed 39 basis points. The 10-year yield will rise to 2.50 percent in the first half of 2017, Commonwealth Bank predicts, compared with the close on Thursday of 2.15 percent.
“Inflation is rising worldwide, and we see the Fed hiking interest rates next month,” said Birgit Figge, a fixed-income strategist at DZ Bank AG in Frankfurt. “The election has just added to that.”
Demand for U.S debt is waning. A $15 billion auction of 30-year bonds Thursday drew bids for 2.11 the amount available, the lowest since February. A sale of 10-year notes on Wednesday had a bid-to-cover ratio of 2.22, the least since 2009.
“There are many risks with Trump still somewhat of an unknown,” said Alex Stanley, a senior interest-rate strategist in Sydney at National Australia Bank Ltd. “The risk is that U.S. long-end yields will rise further and the curve will continue to steepen as the market grapples with the prospect of increased fiscal spending.”