Investors are shifting from bonds to shares after the victory of Trump
The surprising victory of Donald Trump can become the long-awaited end to the more than 30-year bullish sentiment towards the bonds. The expectations for the faster growth and inflation in USA prompted investors to prefer equities and shares over securities. The two-day decline wiped over 1 trillion USD from global bond markets, which is the worst defeat in almost 18 months, because of the expectations that the Trump’s administration plans to boost business investment and to accelerate inflation.
Stampede escape from the bonds market lifted yields on long-term securities to their highest levels since January, as yields on 30-year US government securities (GS) marked its biggest weekly increase since January 2009.
The stock market index of blue-chip Dow Jones industrial average ended its best week of five years on Friday, marking the record value at the end.
The yields on 10-year German bonds rose to its highest level in eight months, while the 10-year UK government bonds rose to its highest level before the decision of Britain to leave the European Union on June 23.
The Global Broad Market Index of Bank of America Merrill Lynch fell by 1.18% last week, the fastest pace of percent drop since June 2015 and is equal to more than 1 trillion USD. The index on US government securities also fell by 1.91% on a total return basis, which is the biggest weekly decline since June 2009.
Many investors, who traded bonds because of their faith in lengthy eased monetary policies worldwide, due to sluggish global economy are not yet ready to quit. They rely on insurance and pension plans, along with European and Japanese investors, struggling with a negative return home to keep bullish sentiment towards bonds.
The analysts predict that the yield on 10-year US government bonds will increase to 2.50% compared to their level of 2.11%, which was reached on Thursday (US bond markets were closed on Friday for national holidays).
In his campaign Donald Trump pledged to reduce taxes, trade restrictions and fiscal infrastructure costs. It is not clear how these promises will turn into policies and the extent to which will affect the economy. Since election day the index of US stock market for prospects of investors in 10-year inflation jumped to its highest level since July 2015.
Although investors have abandoned many types of bonds after the victory of Trump, they headed for the inflation-protected government securities (TIPS) as protection against accelerating inflation. The traders invested 1 billion USD in TIPS during the week to November 9, which is the second largest cash inflow since October 2002.
The yields began to rise after Federal Reserve officials reiterated their calls to raise interest rates until the end of the year – a move that markets considered highly likely.