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Bonds Sales Increase Yield, Feed Equities Buys

January 9, 2017

Amidst all the hoopla from the presidential election, something has been spiraling in the bond market – the amount of investment!

The bond market overall has seen its worst sell off in 13 years, marked by a 5 percent drop between Nov. 1-15, 2016 – that’s one week before and one week after the election.

Some say the sell-off hinged on President-elect Trump’s promise to rebuild our domestic infrastructure, cut taxes and raise trade barriers. The thinking is these policies will drive up inflation and possibly force the Federal Reserve to raise rates more aggressively than expected.

The money isn’t leaving markets overall though. Just two days after Trump’s election victory, bonds shed $1.1 trillion in value, with much of that going towards stocks. Essentially, investors are selling bonds to purchase equities.

Combine these events with the recent interest rate boost and it has propelled treasury yields to their highest levels in quite some time. The 10-year U.S. Treasury bond was in the 1.3 range in July 2016, and it ended the year above 2.4 percent:

As usual with any economic events, this bond phenomenon pleases some investors and displeases others. One thing is certain – for those living on fixed incomes, especially retirees, increased bond yields are welcome news.

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