The post election sell off has taken a break so far today with 10 year treasuries hovering around 2.21% at 11:58 AM EST. Rates have surged since pre election 1.79% on 11/7.
As Bloomberg notes, expectations that Trump, along with a Republican-led Congress, would make good on pledges to spend $550 billion on infrastructure improvement to stoke economic growth sent inflation expectations to the highest since 2015. Yields on two-year notes, the coupon maturity most sensitive to monetary-policy expectations, rose to above 1 percent on Monday for the first time since January as traders added to bets the Federal Reserve will raise interest rates next month.
“The consensus has shifted for good reason,” Matthew Hornbach, head of global interest-rate strategy at Morgan Stanley, said in an interview with Bloomberg Television. “There is some concern over the timing and the extent to which President-elect Trump will be able to follow through on some of his campaign promises specially with respect to infrastructure spending and the tax cuts.”
After this mornings’ huge Retail Spending beat, the focus continues to be whether the December rate hike is on.
Traders assign about a 94 percent probability to a Fed interest-rate increase in December, according to data compiled by Bloomberg based on fed funds futures, up from 84 percent on Nov. 11. The calculation is based on the assumption the effective federal funds rate will trade at the middle of the new range after the central bank’s next increase.