Having written only last week that Trump’s trade wars may prove a bizarrely supportive factor towards safely unwinding overvalued bond markets, I feel as if I provoked bond markets to prove me wrong. Amongst the other news stories, bond markets will have been hardly noticed by most and, so far, the bond sell‑off and resultant rise in yields has not been so dramatic that it would divert mainstream media attention from party conferences or potentially untruthful US supreme court candidates.
But, capital markets do notice these things; the very sudden 0.15% jump in the yields of US government bonds with 10 years to maturity (10yr Treasuries) did send shivers through them, because the last time we experienced a similar magnitude yield move equity markets corrected very sharply. However, thus far, the reaction of stock markets has been far more muted, with equity markets more flat than significantly down. The reason for this may be that this time the yield hike was triggered by unexpectedly strong US economic data (service sector performance and jobs growth) rather than a jump in inflation readings.
