President-elect Donald Trump speaks during his meeting with President Barack Obama in the Oval Office of the White House in Washington, Thursday, Nov. 10, 2016. (AP)

Faith no more: Trump jitters have the normally stable U.S. bond market in convulsions

The U.S. bond market, which has been bullish for three decades, has lost more than $1 trillion in the last two days

Matthew Rozsa
November 15, 2016 2:20AM (UTC)

The bond market is perhaps the single most reliable indicator of investors' faith in a government — and by that metric, America is taking a big hit in the aftermath of Donald Trump's election to the presidency.

Over the past two days, the U.S. bond market — which has been bullish for more than 30 years — lost more than $1 trillion in global trading, the worst loss in nearly 18 months.

"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," explained Jeffrey Gundlach, chief executive officer of Los Angeles-based DoubleLine Capital, in an interview with Reuters. "The cracks have been forming for five years were in this slow-grinding higher phase in yields."
In related news, the benchmark 10-year Treasury note had a yield of 2.301 percent on Monday, the highest intraday level since December, because yields rise when bond prices fall. Bond yields in general have been rising throughout the developed world after sinking to historic lows following the Brexit vote over the summer.
The loss of market confidence in American bonds can also be traced to Trump's proposed infrastructure spending. Because large stimulus projects usually need increased government bond issuance in order to be funded, the fact that demand for government bonds is declining means that more debt supply will further raise bond yields.

”Trump’s election has been viewed as a game changer, with the potential for fiscal stimulus, pro-business reforms and protectionist measures all being priced in to markets,” said Mitul Patel, head of interest rates at Henderson Global Investors, in an interview with The Wall Street Journal.

Matthew Rozsa

Matthew Rozsa is a breaking news writer for Salon. He holds an MA in History from Rutgers University-Newark and is ABD in his PhD program in History at Lehigh University. His work has appeared in Mic, Quartz and MSNBC.

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