Today the market saw the yield on U.S 10-year treasury notes hit its highest point in 2016 and settle at around 2.23% according to the U.S Department of the Treasury . Bond yields in the U.S have be on the rise this year and has accelerated after Donald Trump’s victory in the presidential election last week. The economic policies he has been advocating includes creating more jobs, cutting taxes, and increasing infrastructure spending. In response, the market has been selling off safe long-term investments like 10-year treasury notes, placing investments in stocks and other vehicles that can benefit from the proposed fiscal stimulus.
Increased government bond issuance may be needed to raise funding for new policy implementation, increasing the supply of U.S government bonds that may cause even higher yields. Another contributor to the higher yield situation is likely due to uncertainty as the world is unsure what fiscal and foreign policy decisions will actually be realized by the U.S government. There are different perspectives on the case of rising government bond yields. One perspective is a signalling of stronger economic outlook where there is higher investor sentiment. Another perspective is that higher yields will likely be followed by rising costs of borrowing for businesses and consumers.
The 10-year Government of Canada bond yield also rose, reaching 1.54% today according to Bloomberg . The increasing bond yields in Canada is likely influenced by its U.S counterpart. Investors in Canada also believe that the policies in the U.S may result in higher inflation.
The U.S Treasury yields also impact the global emerging markets, with effects seen in markets like the Hong Kong Hang Seng which saw a decrease of 1.37% today. This is due to investors leaving the emerging markets in anticipation of higher U.S market returns.