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The bond market sell-off resumed on Monday on the heels of the worst week for US Treasuries in more than seven years, on growing worries that inflation will resurge under the policies of President-elect Donald Trump. The yield on the 30-year Treasury bond, the security most sensitive to inflation expectations, shot above 3 percent for the first time since January. The gap between the yields on 10-year and 2-year notes rose from 1.21 percent at the end of last week to 1.26 percent, its widest since December.
The move follows a sell-off last week in the aftermath of Trump's victory in the 2016 presidential election. Treasuries suffered their worst showing since June 2009, according to Bank of America/Merrill Lynch Fixed Income Index data.
The bond market's longer-term gauge on investors' inflation expectations also climbed, touching its highest level in more than two years. The 10-year inflation breakeven rate, or the yield difference between 10-year Treasury Inflation Protected Securities and regular 10-year Treasury notes, reached 1.99 percent, the highest since September 2014, Reuters data showed.
Though yields fell from their multi-month highs during the day, analysts said they saw no end in sight for the overall move lower in bond prices and higher in yields. "I think there's more to go. I think we've topped out as far as the value of bonds," said Tom Simons, money market economist at Jefferies and Co. "Trump is talking about running an extremely loose fiscal policy, higher spending and lower taxes, and his trade and immigration policies suggest that the labor market is going to get even tighter. All of that adds up to a pretty high inflation environment in the future."
Rising inflation hurts bond prices because it makes their future interest payments worth less. Yields on 30-year bonds rose to a high of 3.067 percent, a peak not touched since December. Benchmark 10-year notes saw their yields rise to 2.302, also the highest since December.

Copyright Reuters, 2016

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