Over $1 Trillion In Bond Losses In Days: Second Worst Week Ever

Six months after we warned about the massive loss potential resulting from a spike in bond yields, one month after Ray Dalio did exactly the same, when he warned the NY Fed that "it would only take a 100 basis point rise in Treasury bond yields to trigger the worst price decline in bonds since the 1981 bond market crash", and one day after we documented that MTM losses from surging bond yields had surpassed a third of a trillion, the tally is now three times greater, with total MTM losses soaring to $1 trillion just two days after the presidential election.

As Bloomberg calculates, more than $1 trillion was wiped off the value of bonds around the world this week on concerns Trump’s policies will unleash a debt tsunami and are seen boosting spending and quickening inflation. They are also expected to lead to much more QE as there will be trillions in government budget deficits that need to be funded.

As a result, the Trump Tantrum, the capitalization of a global bond-market index slid by $450 billion Thursday, fourth day of declines that pushed the week’s total above $1 trillion for only the second time in two decades, Bank of America Merrill Lynch data show. 30Y yields jumped the most this week since January 2009, and the week is not over yet.

At the same time, global stocks gained $1.3 trillion in the same period, on hopes inflation will lead to higher revenue; however this divergence will not last as a spike in inflation, if it arrives, will wipe out profit margins, and furthermore as Dalio explained to 17-year-old hedge fund managers, "since those interest rates are embedded in the pricing of all investment assets, that would send them all much lower."

More importantly, Robert Rennie, head of financial markets strategy at Westpac in Sydney, confirmed what we said previously when he wrote in a client note that “we are seeing carnage in Asian FX markets. It’s providing a very strong reminder that the S&P 500 is not the correct barometer of Trump-driven risk aversion -- it’s Asian currencies."

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Moon Kil Woong 4 years ago Contributor's comment

#Hillary and #Trump proposed massive deficit spending. Thus I have no idea what people were hoping for betting on for lower and lower bond rates post election. I guess they were betting Republicans held the House and Senate still (which they did) or that the #Fed would announce the end of raising rates and the US or even go back to #zirp. One can't realistically blame Trump alone for any of this.

Gary Anderson 4 years ago Contributor's comment

Even the housing #bubble of the last decade could not overcome the conundrum over time.