While you were sleeping: US Treasuries slide

Tuesday 15th November 2016

US Treasuries dropped, while the greenback strengthened amid expectations that Donald Trump will boost government spending and inflation when he takes over the US presidency.

"We’ve had a sentiment shift in the bond market. We’ve seen it, too. People have already started reallocating out of bonds and into stocks,” Jeffrey Gundlach, chief executive officer of Los Angeles-based DoubleLine Capital, told Reuters. "The cracks have been forming for five years – we’re in this slow-grinding higher phase in yields.”

The yield on 30-year Treasuries climbed to the highest level since January, rising as high as 3.06 percent, while the yield on the benchmark 10-year note rose seven basis points to 2.22 percent as of midday trading in New York, according to Bloomberg.

“Trump has introduced so much uncertainty—around the fiscal outlook, the outlook for foreign demand for Treasuries given his protectionism and his views on China, uncertainty around the outlook for the Fed,” John Davies, an interest-rate strategist at Standard Chartered in London, told Bloomberg.

US Federal Reserve policy makers are widely expected to raise interest rates in December.

“There’s an uncertainty premium, rather than just expectations of much more Fed tightening,” being priced into Treasuries, Davies noted. “We think there’s room for this to continue.”

Wall Street eased. In 1.15pm trading in New York, the Dow Jones Industrial Average slipped 0.01 percent, giving up earlier gains. Earlier in the session it touched a record high 18,934.05.

The Nasdaq Composite Index fell 0.3 percent. In 1pm trading, the Standard & Poor’s 500 Index slid 0.2 percent.

“In any election cycle, many candidates make a lot of election promises and obviously they can't deliver for a variety of reasons on all these promises," Mohannad Aama, managing director at Beam Capital Management in New York, told Reuters. “Right now during this transition period, there is a lot of pricing in the unknown."

In the Dow, slides in shares of Visa and those of Apple, down 5 percent and 2.9 percent respectively, offset gains in shares of McDonald’s and those of UnitedHealth, up 3.5 percent and 3.4 percent respectively.

The latest corporate deals provided a boost to some stocks. Shares of Harman International soared, last up 25 percent, after Samsung Electronics agreed to buy the company for US$8 billion. Shares of Mentor Graphics jumped, last up 18.4 percent, after Siemens agreed to buy the software maker in a US$4.5 billion deal.

In Europe, the Stoxx 600 Index ended the session with a 0.3 percent gain from the previous close, as bank stocks including UBS and HSBC rose amid hopes for looser industry regulation under Donald Trump.

Germany’s DAX Index added 0.2 percent, while the UK’s FTSE 100 Index rose 0.3 percent, and France’s CAC 40 Index advanced 0.4 percent.

BusinessDesk.co.nz

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