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Friday, November 11, 2016
TRUMP Triggered `Bond `Riot’
Donald Trump's victory is causing a sharp jump in U .S. interest rates victory. Today we saw emerging markets and its currencies collapsing . The 10-year U.S. Treasury yield went to as high as 2.14 percent Thursday from about 1.80 pre-election, on expectation of large infrastructure program that could generate growth but also create inflation and more debt. While the U.S. stock market rallied Thursday, the Asia markets went the reverse was a blood bath, With higher interest rates , high-yielding stocks like telecom and utilities were particularly weak .When U.S. yields go up, emerging market's get hit, largely because they have dollar denominated debt. The real risk right now is the Treasury bond market and is spiraling down. This is because a Trump triggered “bond riot” has the potential to feed on itself in the run up to his inauguration on 20 January. Another risk posed by a bond riot would be renewed turmoil in the credit markets. A bond sell off will also stress test Kuroda recent commitment to fix the 10-year JGB yield at 0%. If 10-year Treasury bond yield through 2.4%, could trigger a massive bond buying program to support JGB yield at zero % which would be yen bearish and will triggered a sell off in Emerging market and its currencies. The US rate hike in December looks like a sure thing following last Friday’s data with average hourly earnings growth accelerating to 2.8%YoY in October. A strong dollar and rising bond yields, followed by a Fed rate hike will certainly send shudders through the markets as December approaches.