y March 27, but Wall Street is already getting one of its biggest calls of the year all wrong: The death of the bull market in bonds.
The election of Donald Trump as president sparked an exodus from the US Treasury market in the final months of 2016 and early 2017 as investors began to price in the possibility that Trump’s plans for a protectionist trade policy, tax cuts, deregulation, and massive infrastructure spending would bring back inflation to the US.
In mid-November, just weeks after the election, Bank of America’s Michael Hartnett declared, “If Brexit marked [a] 5,000 year low in global interest rates, Trump marked [the] moment investors started to position for [a] bond bear market.”
Post-election selling of longer-dated maturities ran yields up by as much as 90 basis points, with the 10-year briefly crossing 2.60% on two separate occasions, causing some Wall Street houses to declare the beginning of the long-awaited “great rotation,” or mass exit from bonds into stocks.
The Fed first hiked rates in December, then hiked rates again in March and said it appeared the economy was on track for two more rate hikes this year. The benchmark 10-year yield hit a high of 2.626% on March 13, briefly ticking above the 2.60% threshold that bond market veteran Bill Gross said was “much more important than Dow 20,000.”
Last Friday, GOP leaders in the House of Representatives pulled a vote on their plan to repeal and replace Obamacare. Since then bond yields have been pressing lower as markets begin to doubt President Trump’s ability to deliver on his agenda.
The 10-year yield is down to 2.35% and is now threatening key support in the 2.30%. If that support level breaks down, a retest of 10-year’s election night close of 1.85% won’t be too far away.