The global bond market sell-off has accelerated into the new year, as investors become increasingly concerned about the potential for a U.S. Federal Reserve rate hike under President Donald Trump. The trend is being driven by rising borrowing costs in the U.S. treasury market, where 10-year government bonds have reached 4.8% on Monday.
This sell-off has had a ripple effect across financial markets, weighing on equities and other risk assets. Central banks have continued to cut short-term interest rates, but investors are pushing against this trend due to concerns about inflationary implications from a trade war and increased treasury issuance to fund deficit spending.
Analysts say that investors are taking a cautious approach, expecting Mr. Trump’s economic policies to juice growth in the near term but also increase deficits, which will require more bond issuance. This has led to a market overcompensation, with some predicting bond yields could fall in the coming quarters if Mr. Trump follows through on his trade war.
However, experts caution that this is not a straightforward scenario, as Fed officials have signaled they are likely nearing the end of their easing cycle and may raise rates only once or twice in 2025. The market’s response to these developments will be closely watched by investors, who are seeking clarity on the path forward for interest rates.
Key Takeaways:
– Global bond market sell-off accelerates into new year
– Rising borrowing costs in U.S. treasury market drive trend
– Investors concerned about inflationary implications from trade war and increased deficits
– Analysts predict market overcompensation, with potential for bond yields to fall
Source: https://www.theglobeandmail.com/business/article-global-bond-sell-off-persists-on-strong-us-data-widespread-fiscal