Mirroring the move in European and US sovereign bond yields overnight, Australian government bond yields are hurtling higher on Thursday morning.
The benchmark 10-year yield currently sits at 2.51%, a far cry from the 2.24% low struck in the depths of market despair less than 24 hours ago.
It now sits at the highest level since May 3, the day the outlook for Australian interest rates shifted dramatically following the release Australia’s ultra-low Q1 CPI report.
Suddenly, after thinking that a Trump presidency would bring a global recession, markets have now adopted the view that his pro-growth policy measures will be a good thing for not only the US economy, but also other nations.
That, it turn, is expected to spur inflationary pressures.
While that’s yet to be seen, and there are lots of “ifs” and “buts” about whether Trump’s policies will pass Congress, the mere thought of a ramping up of fiscal spending in the world’s economy has certainly got rates markets stirring.
“US treasuries have had a rollercoaster 24 hours,” said Imre Speizer, senior market strategist at Westpac.
“The US 10-year yield initially rising to 1.89% on expectation of a Clinton win, then a risk-averse plunge to 1.71% as a Trump victory looked likely instead, and then a rise to 2.05% overnight as markets adopted a growth-positive view.
“The revised inflationary thoughts of markets are most apparent via the US 10-year break-even inflation indicator, which rose from 1.70% to 1.87% – a 16-month high.”
Speizer notes that the odds of a US rate hike next month now stands at nearly 80%, roughly in line with the view seen before the US presidential election..