Trump Uncertainty and Hawkish Central Banks Spark Yield Surge

A one-two punch, centered on continued doubts about President Donald Trump’s Wall Street-friendly agenda and hawkishly interpreted comments from global central bankers, is knocking investors around, sparking a surge in yields and sharp swings in currencies.

Global government bond yields and the euro were jolted higher, putting pressure on the U.S. dollar on the heels of statements from European Central Bank President Mario Draghi, whose remarks were taken as a suggestion that the ECB may be inclined to wind down its balance sheet as European growth picks up. Those comments were followed by similarly upbeat utterances from Bank of England Gov. Mark Carney

Combined with expectations that the Bank of Japan may be on a similar footing, a world-wide effort to normalize monetary policy removes a longstanding safety net from a stock market that is in its ninth year and comes amid mounting concerns that Trump’s pro-growth agenda won’t soon become a reality.

On Thursday, long-dated bond yields were looking at their biggest weekly gains since the period ended March 3, according to WSJ Market Data Group. The 10-year Treasury note TMUBMUSD10Y, +1.62% which as high as 2.29%, up about 14 basis points on the week, while the 30-year bond TMUBMUSD30Y, +1.47% also looking at its steepest yield climb since March, has rallied more than 11 basis points so far this week.

Meanwhile, against the euro EURUSD, +0.5800% the dollar was down 2% on the week.

Those are sizable swings, and much of those moves occurred over the course of 48 hours, highlighting the potential for markets to abruptly experience a so-called “taper tantrum “on the threat of two legs of economic and market stimulus being suddenly removed or delayed.

via MarketWatch

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza