Trump victory wipes $337 billion off market as global bonds drop

Investors saw $337 billion wiped off the value of securities that comprise an index of global bonds in a single day Wednesday as Donald Trump's election as U.S. president sparked concern his plan to boost economic growth will lead to a surge in inflation.

The total market value of bonds around the world slid by $692 billion during the past three days, data compiled by Bank of America Merrill Lynch show, bolstered by speculation Trump's victory and a Republican-led Congress will lead to a wave of spending. The sell-off spread further into European bonds on Thursday, as traders caught up with moves in U.S. Treasuries.

'Right now bonds are in some trouble,” said Barra Sheridan, a rates trader at Bank of Montreal in London. There is some concern that Trump 'will be more fiscally expansionary, he will look to spend more money.”

The U.S. 10-year yield was at 2.06 percent as of 10:54 a.m. in London, according to Bloomberg Bond Trader data. The yield jumped 20 basis points Wednesday, the most on a single day since July 2013.

The sell-off spread across the world, with bonds across Europe falling Thursday. The yield on 10-year German bunds climbed as much as eight basis points to 0.28 percent, its highest since May 2, while the yield on similar-maturity U.K. gilts rose for a fourth day to 1.35 percent, the most since June 23.

Italian 10-year bond yields added eight basis points to 1.83 percent, and those on Spain's climbed six basis points to 1.34 percent.

Bonds are falling as traders boost their inflation outlook and increase bets the Federal Reserve will raise interest rates. Bonds had initially risen on haven demand as the early vote count showed Trump set to win the election, before changing direction.

'Trumpeconomics implies a likely faster pace of Fed rate hikes next year,” said Robert Rennie, head of financial markets strategy at Westpac Banking Corp. in Sydney. 'It is clear that this wave of populist vote has reflected, in part, dislike of tight fiscal, easy monetary policy. If we are now seeing a shift in the U.S., then that means markets will have to re-price this.”

The U.S. 10-year note yield will climb to 2.30 percent by June, Rennie said.

Trump, the 70-year-old real estate magnate, has pledged to cut taxes and boost spending on infrastructure by as much as $500 billion. His proposals would increase the nation's debt by $5.3 trillion, the non-partisan Committee for a Responsible Federal Budget estimated. The government's marketable debt has more than doubled under President Barack Obama, to a record of almost $14 trillion.

The extra yield on U.S. 30-year Treasuries over two-year notes surged to the highest since February on Wednesday as investors priced in Trump's pro-growth policies. The spread was at 195 basis points Thursday, after reaching 199 basis points a day before.

BMO's Sheridan predicts yields on 10-year Treasuries can reach around 2.20 percent within a month. 'The steepening trend is pretty firmly entrenched, I think it will continue,” he said.

The difference between yields on 10-year Treasuries and U.S. inflation-linked debt, a gauge of expectations for consumer prices, jumped to 1.87 percent Wednesday, the most since July 2015. The figure shows the market's forecast for the annual average inflation rate over the period.

Quickening inflation means Fed policy makers may act more swiftly to raise interest rates after holding off since increasing them from near zero in December 2015. As of Nov. 9, there was an 82 percent chance they will move at their Dec. 13-14 meeting, up from 76 percent at the end of last week, according to data compiled by Bloomberg based on futures.

'We had flagged repeatedly that longer-term yields are too low relative to inflation,” said Eugene Leow, a fixed-income strategist at DBS Group Holdings Ltd. in Singapore. 'The market has been adjusting, but it took a Trump victory and a Republican sweep of Congress to prompt the market to rethink the inflation outlook.”