The global bond market rout triggered by Donald Trump’s US election victory looks overdone, according to bond investors now betting that the sell-off was too violent and that borrowing costs will remain contained into the start of the new year.
Mr Trump is expected to unveil a large, inflation-fuelling economic stimulus package of infrastructure spending and tax cuts, which has stoked fears of an end to the three-decade bull market in bonds. The global fixed income market lost more than $1.8tn of value over the past two weeks, sending yields — which move inversely to prices — to a nine-month high on Friday.
But some big investors are betting that the bond turmoil has been excessive, and are dipping back into the market, especially in areas such as US corporate debt, which now offers more attractive returns.
“There’s a greater chance of higher rates than before, but the fundamental backdrop — much greater global demand for dollar fixed income than supply — means they will stay low,” said Tod Nasser, chief investment officer of Pacific Life, an insurer. He is ramping up purchases of US corporate bonds in particular. “We want to be a bit more aggressive now,” he said.
The yield on 10-year Treasuries, one of the most closely followed rates, has climbed from 1.77 per cent ahead of the US presidential election to 2.35 per cent on Friday, the highest level since last December. That move has reverberated across debt markets, but many analysts and fund managers have pointed out that the details — and practicality — of many of Mr Trump’s plans remain unclear.
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