11-16-2016, 09:20 PM
In a flash, the world has changed for bond investors, savers and borrowers. President-elect Donald Trump's White House victory was a surprise, and so is the ripping sell-off in global bond markets, which has quickly driven U.S. interest rates to the highest levels in a year. The rout has wiped out an estimated $1 trillion from global bond markets and has Wall Street scrambling to retool its forecasts.
Donald Trump blew up the bond market and changed everyone's view of interest rates
Digging further into the S&P 500 SPX, -0.06% 65 stocks hit 52-week closing highs on Friday, and 19 of those were up 15% or more last week... Among these 19 companies, 13 are in the financial sector. What has changed for them in the wake of the election? Long-term interest rates are rising. The yield on 10-year U.S. Treasury notes TMUBMUSD10Y, +4.52% has jumped to about 2.25% from 1.83% just a week ago as bond investors focus on the likelihood of a surge in government spending by the Trump administration and a pickup in inflation. Rising long-term rates means increased volatility, which will increase brokers’ commissions and boost their trading operations. Higher rates also mean the gap between what banks collect as interest on loans and their cost for deposits will increase.
It may be time to take some Trump stock profits - MarketWatch
Investors were worried about the fallout from the massive selloff as bond funds racked up huge losses. Goldman Sachs warned its clients that the speed of the selloff could trigger deeper instability in interest-rate markets. The bond-market selloff, the latest leg of which began last week after Republican Donald Trump beat Democrat Hillary Clinton in the U.S. presidential election, accelerated on Monday despite weak retail and output figures out of China—a telling sign of investors’ priorities, said Aaron Kohli and Ian Lyngen, a team of fixed-income strategists at BMO Capital Markets.
10-year Treasury yield hits 1-year high as bond selloff accelerates - MarketWatch
Above you have a chart showing the S&P 500 earnings yield versus the 10 year treasury. This is called "the Fed model." When bond yields go down stocks become more attractive. Now with the jump in bond yields stocks are less attractive. You see the blue line shows that stocks have not (literally) earned their valuation. Earnings have come down. Now with the recent jump in bond yields the "difference" between earnings yield and bond yields has dropped. See the red line above. That chart is as of yesterday. If bond yields keep going up and earnings don't come through, everybody's favorite trade (The Fed Model) is getting less and less attractive.
What Stocks Need To Go Up - SPDR S&P 500 Trust ETF (NYSEARCA:SPY) | Seeking Alpha
As one might expect, anything that could be negatively impacted by a strengthening dollar and higher rates was hurt. The best example of this is emerging market debt (NYSEARCA:EMB), hit by the double whammy and down nearly 5% on the week (contrarian play? - we believe a little too early, but possible). Similarly, emerging market equities (NYSEARCA:EEM) and global REITs ex-US (NASDAQ:VNQI) got hit pretty hard. On the fixed income side, the prospect of growth (and therefore better financial position) helped offset higher rates by having spreads tighten on credit product.