Bonds Are in for a “Rough Ride”as Trump Rally Extends

Bonds Are in for a “Rough Ride”as Trump Rally Extends

$DIA, $SPY, $QQQ, $VXX

Bonds are in for a tough ride in 1-H of Y 2017 as U.S. President-elect Donald Trump’s plans to boost fiscal spending could stoke inflation around the globe.

Experts now expect 3 interest rate hikes by the Fed by the end of Y 2017.

The shift in inflation expectations … has big implications for investments. The early part of the year could be trickier for bonds globally.

The yield on benchmark 10-year Treasuries surged to a Y 2016 high of 2.3% on 14 November,  Japanese government bonds, German bunds and UK gilt yields all hit multi-month highs this week.

The election of Donald Trump as US President has caused a surge in the USD, bond yields and US stocks as markets bet on looser US regulations, increased stimulus and faster economic growth.

Trade-reliant EMs (emerging markets) have largely sold off on fears over Donald Trump’s anti-globalization stance, though there is uncertainty how much of his campaign rhetoric will become policy.

There is really no way to fully hedge the Trump risk. The trade risk is the biggest one to watch.

The USD could also continue to strengthen, particularly as a potential tax amnesty to urge US corporations to repatriate earnings could lead to further inflows.

The stronger USD could prove inflationary in other parts of the world as other currencies depreciate.

Despite a weaker JPY, Japan is likely to be among the hardest hit in Y 2017, given its large domestic debt, low interest rates and unfavorable demographics, with no long-term solution.

The Chinese central bank has been trying to defend the RMB Yuan, leading to some depletion of reserves, even as it tries to grow the monetary base

The RMB Yuan could fall further and the PBOC will continue to have to deplete reserves in the short term to protect the currency’s liquidity.

US Treasury market lower Thursday, Yield Check: 2-yr: +2 bpts at 1.02% 5-yr: +5 bpts at 1.72% 10-yr: +6 bpts at 2.28% 30-yr: +8 bpts at 3.00%

US Dollar (DXY) Index finished  +0.45% at 100.86 $EURUSD -0.67% to 1.0629 $GBPUSD -0.08% to 1.2422 $USDCHF +0.54% to 1.0066 $USDJPY +0.99% to 109.93

Thursday, the US major stock market indexes finished at: DJIA +35.68 at 18903.82, NAS Comp +39.39 at 5333.97, S&P 500 +10.18 at 2187.12

Volume: trade was heavy with 1.92-B/shrs exchanged on the NYSE

Stay tuned…

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