The fallout from Donald Trump’s election to the U.S. presidency eased off in financial markets with Treasuries and emerging markets halting their routs. Oil surged.
Treasury 10-year note yields fell from this year’s high and Italy’s bonds led gains in the euro area, outperforming German bunds, which investors tend to favor in times of turmoil. Shares in developing nations advanced after the biggest slide since August, while U.S. stocks fluctuated. Crude jumped as OPEC nations were said to be making a final diplomatic effort toward securing a deal to curb production and stabilize prices. Copper tumbled.
Trump’s election victory, which came with pledges to cut taxes, spend more than $500 billion on infrastructure and restrict imports, triggered a record selloff in global bonds as traders assessed the implication for inflation and interest rates. Some, including Fidelity Investments’ Ford O’Neil, have already expressed skepticism that Trump’s proposals will be fully backed by Congress, while Goldman Sachs Group Inc. last week said the rally in iron and copper was “too much, too fast.”
“Many people were surprised by the market reaction to the election, but now portfolio managers are starting to focus more on where potential investment opportunities may be with a Trump administration,” said Ross Yarrow, director of U.S. Equities at Robert W. Baird & Co. in London. There has been “lots of chatter of fiscal stimulus and tax reform, but there are still a lot of moving parts and no firm details.”
Bonds
The yield on benchmark Treasury 10-year notes dropped three basis points, or 0.03 percentage point, to 2.23 percent as of 12:07 p.m. New York time. The 41 basis-point jump over the last three trading sessions marked the steepest climb in more than seven years and the 14-day relative strength index for the securities indicated they were the most oversold since 1990, a potential signal that they may be set for a reversal.
O’Neil, who oversees about $100 billion in bonds for Fidelity Investments, said the sharp run-up in yields following the election may not be justified given that Trump will face resistance from Congress in getting his fiscal stimulus plans approved.
Federal Reserve Bank of Richmond President Jeffrey Lacker said Monday that easier fiscal policy may require higher rates, but it’s too early for the central bank to react to potential policy changes by the incoming administration.
Italy’s 10-year yield slid 11 basis points to 1.97 percent, after rising for five consecutive days, and that on Spanish securities with a similar due date dropped to 1.45 percent, from as high as 1.66 percent on Monday. German bund yields were little changed at 0.31 percent, as a report showed growth in Europe’s biggest economy slowed to the weakest pace in a year last quarter.
Indian bonds rallied on expectations liquidity will improve in the wake of Prime Minister Narendra Modi’s surprise Nov. 8 crackdown on unaccounted wealth through the withdrawal of high denomination bills. Japan’s 10-year bond yield increased to zero, having been negative for almost eight weeks, as a gauge of demand weakened at a sale of five-year securities on Tuesday.