US growth hopes and oil surge fuel worst bond rout since 1990

Investors fear post-Donald Trump growth of 3-4% may end period of falling interest rates

 New York Stock Exchange:   the 10-year US treasury yield climbed to 2.49 per cent, the highest since June 2015. Photograph: Michael Nagle/Bloomberg

New York Stock Exchange: the 10-year US treasury yield climbed to 2.49 per cent, the highest since June 2015. Photograph: Michael Nagle/Bloomberg

 

Surging oil prices and a commitment by the incoming Trump administration to turbocharge economic growth intensified a sovereign bond rout yesterday that last month left investors nursing their worst losses since 1990.

Bond yields of most developed economies climbed steeply in a sell-off led by treasuries, as investors grew increasingly anxious that president-elect Donald Trump’s ambition to return the US economy to growth of 3-4 per cent would mark the end of a period of declining interest rates.

Yesterday, the 10-year US treasury yield climbed to 2.49 per cent, the highest since June 2015. Comparative sovereign bonds in the UK, France, Germany, Australia, Italy and Spain rose between five and six basis points. Irish 10-year bonds closed at 0.882 per cent, up six basis points.

Sovereign bonds

As Brent crude prices surged above $54 a barrel to a 14-month high following Opec’s pledge of a production cut, concerns over higher inflation added to the flight from sovereign bonds whose record-breaking run in the first half of the year began to falter in July.

On Wall Street, energy stocks and financials extended their recent gains, buoyed by crude’s charge and a higher interest rate environment.

Investors were also wary of the prospect of another robust US employment report, which is expected to offer further evidence that the economy has plenty of momentum even before Mr Trump takes office in January. The US is expected to have created about 180,000 new jobs in November, up from 161,000 in October. – Copyright 2016 The Financial Times Limited