LONDON: Safe-haven German government bond yields bounced off two-week lows on Wednesday as the initial shock of Republican Donald Trump’s victory in the US presidential election started to ebb.
The result was the second such shock after Britain’s unexpected decision to quit the European Union and highlighted a backlash against the political order just as another major risk event looms for Europe — an Italian referendum on constitutional change in December.
The yield on Germany’s benchmark 10-year Bund, regarded as one of the safest assets in the world, initially fell as much as 8 basis points to 0.09 percent.
But as Trump struck a conciliatory tone in his speech, saying it was time to heal divisions caused by the campaign, Bund yields pulled back from their lows to around 0.14 percent — down about 4 bps on the day.
Investors generally viewed Democratic candidate Hillary Clinton, ahead in the opinion polls before the election, as a known quantity. Uncertainty remains about what a Trump presidency might mean for US economic policy, free trade and geopolitics.
“The initial reaction in markets was violent, but gradually we have seen that risk-off move retrace quite significantly,” said Roger Douglas, a senior portfolio manager at Deutsche Asset Management.
“It could be people looking for signs of moderation in his policy, or people starting to wonder whether that moderation will start to come through in the near future.”
US Treasury yields also reversed their falls, trading at 1.91 percent — up 5 bps on the day.
Yields on low-rated euro zone bonds in Italy, Portugal and Spain rose slightly, while a key market gauge of long-term euro zone inflation — the five-year, five-year forward rate — also touched a two-week low before rebounding.
Elsewhere in markets, the dollar and stocks sank.
Like Britain’s Brexit vote, investors appeared wrongfooted with US and European bond yields rising on Tuesday in a sign of investor confidence that Clinton would triumph.
“What’s more is the fact that the market — as was the case with the UK referendum — set itself up the other way of this event and its binary outcome, which should leave the market reaction exacerbated by positioning,” said Commerzbank rates strategist David Schnautz.
RATE UNCERTAINTY
Trump’s election win also cast doubt on whether the US Federal Reserve will raise interest rates in December, as many traders had anticipated before Tuesday’s tight election.
Frederik Ducrozet, a senior economist at Pictet Wealth Management, said the result also meant any prospect of a tapering of European Central Bank monetary stimulus looked even less likely than before.
Euro zone bond markets have been rattled in recent weeks by talk of a possible scaling back of ECB bond-buying although many economists expect the ECB to extend its asset purchase scheme when it next meets in December.
Euribor futures rose <0#FEI:> 1-5 bps across the 2017-2020 strip as investors started to price in a small chance of an ECB interest rate cut in coming years.
The result was the second such shock after Britain’s unexpected decision to quit the European Union and highlighted a backlash against the political order just as another major risk event looms for Europe — an Italian referendum on constitutional change in December.
The yield on Germany’s benchmark 10-year Bund, regarded as one of the safest assets in the world, initially fell as much as 8 basis points to 0.09 percent.
But as Trump struck a conciliatory tone in his speech, saying it was time to heal divisions caused by the campaign, Bund yields pulled back from their lows to around 0.14 percent — down about 4 bps on the day.
Investors generally viewed Democratic candidate Hillary Clinton, ahead in the opinion polls before the election, as a known quantity. Uncertainty remains about what a Trump presidency might mean for US economic policy, free trade and geopolitics.
“The initial reaction in markets was violent, but gradually we have seen that risk-off move retrace quite significantly,” said Roger Douglas, a senior portfolio manager at Deutsche Asset Management.
“It could be people looking for signs of moderation in his policy, or people starting to wonder whether that moderation will start to come through in the near future.”
US Treasury yields also reversed their falls, trading at 1.91 percent — up 5 bps on the day.
Yields on low-rated euro zone bonds in Italy, Portugal and Spain rose slightly, while a key market gauge of long-term euro zone inflation — the five-year, five-year forward rate — also touched a two-week low before rebounding.
Elsewhere in markets, the dollar and stocks sank.
Like Britain’s Brexit vote, investors appeared wrongfooted with US and European bond yields rising on Tuesday in a sign of investor confidence that Clinton would triumph.
“What’s more is the fact that the market — as was the case with the UK referendum — set itself up the other way of this event and its binary outcome, which should leave the market reaction exacerbated by positioning,” said Commerzbank rates strategist David Schnautz.
RATE UNCERTAINTY
Trump’s election win also cast doubt on whether the US Federal Reserve will raise interest rates in December, as many traders had anticipated before Tuesday’s tight election.
Frederik Ducrozet, a senior economist at Pictet Wealth Management, said the result also meant any prospect of a tapering of European Central Bank monetary stimulus looked even less likely than before.
Euro zone bond markets have been rattled in recent weeks by talk of a possible scaling back of ECB bond-buying although many economists expect the ECB to extend its asset purchase scheme when it next meets in December.
Euribor futures rose <0#FEI:> 1-5 bps across the 2017-2020 strip as investors started to price in a small chance of an ECB interest rate cut in coming years.
