Global Bond Investors Lose A Third Of A Trillion Dollars In One Day

Tyler Durden's picture

Back in June, we warned that based on simple duration analysis, as a result of total market-traded US debt aggregates anywhere between $17 and $40 trillion - an all time high in terms of rate duration...


...  traders faced massive mark-to-market losses of anywhere between $2.4 and $5 trillion should rates suddenly spike higher.... as they did yesterday, when as we reported the yield on the 10Y and 30Y Treasury jumped the most in percentage terms on record."The U.S. 10-year yield was three basis points, or 0.03 percentage point, higher at 2.09 percent as of 12:09 p.m. in London, according to Bloomberg Bond Trader data. The yield jumped 20 basis points Wednesday, the most on a single day since July 2013."

Today, Bloomberg has crunched the numbers after yesterday's bond rout, and calculates that bond investors saw $337 billion - just over a third of a trillion - in losses on global bond holdings in a single day Wednesday "as Donald Trump’s election as U.S. president sparked concern his plan to boost economic growth will lead to a surge in inflation."

The sharp, aggressive selloff, which continues today, spread into European and Asian bonds on Thursday, as traders caught up with moves in U.S. Treasuries. Speculation that Trump’s victory and a Republican-led Congress will lead to a wave of spending, spurred the likelihood that inflation will pick up in coming months, which would in turn erode the value of bonds. The decline in bonds saw Bank of America Merrill Lynch’s Global Broad Market Index drop by about 0.7 percent on Wednesday.

Having been stuck in NIRP hibernation for years, the market suddenly had to look up what this thing called "duration risk" is.

“Right now bonds are in some trouble,” said Barra Sheridan, a rates trader at Bank of Montreal in London. There is some concern that Trump “will be more fiscally expansionary, he will look to spend more money.”

European bonds were slammed too: the yield on 10-year German bunds climbed as much as eight basis points to 0.28 percent, its highest since May 2, while the yield on similar-maturity U.K. gilts rose for a fourth day to 1.35 percent, the most since June 23. Italian 10-year bond yields added nine basis points to 1.84 percent, and those on Spain’s climbed seven basis points to 1.35 percent.

As we explained yesterday, the reason behind the stock market rally and the yield surge is that bonds are falling as traders boost their inflation outlook and increase bets the Federal Reserve will raise interest rates. Bonds had initially risen on haven demand as the early vote count showed Trump set to win the election, before changing direction.

“Trumpeconomics implies a likely faster pace of Fed rate hikes next year,” said Robert Rennie, head of financial markets strategy at Westpac Banking Corp. in Sydney. “It is clear that this wave of populist vote has reflected, in part, dislike of tight fiscal, easy monetary policy. If we are now seeing a shift in the U.S., then that means markets will have to reprice this.”

As a reminder, Trump has pledged to cut taxes and boost spending on infrastructure by as much as $500 billion. His proposals would increase the nation’s debt by $5.3 trillion, the non-partisan Committee for a Responsible Federal Budget estimated. The government’s marketable debt has more than doubled under President Barack Obama, to a record of almost $14 trillion.

Once again, like every previous time when there is a bond selloff, strategists came out of the woodwork to predict a spike in yields, foreccasting between 2.5% and 3% or higher year end targets in 12 months. BMO’s Sheridan predicts yields on 10-year Treasuries can reach around 2.20 percent within a month. “The steepening trend is pretty firmly entrenched, I think it will continue,” he said.

Meanwhile, curves steepened aroudn the globe: the difference between yields on 10-year Treasuries and U.S. inflation-linked debt, a gauge of expectations for consumer prices, jumped to 1.87 percent Wednesday, the most since July 2015. The figure shows the market’s forecast for the annual average inflation rate over the period.

Finally, explaining the surge in the dollar, the sharp rebound in inflation measures means the Fed may have no choice but to act more swiftly to raise interest rates after holding off since increasing them from near zero in December 2015. There was an 82 percent chance they will move at their Dec. 13-14 meeting, up from 76 percent at the end of last week, according to data compiled by Bloomberg based on futures.

As for the massive MTM losses on bond positions, we look forward to see how bond investors will flow these through the P&L. Of particular interest, keep an eye on risk parity funds, which tend to have unpleasant days any time stocks soar while bond prices plunge.

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cossack55's picture

Inflate some Au and Ag prices

roxyNL's picture


Thanks to comex and fractional reserve banking, Au and Ag prices are suppressed.

Only way to see significant increase is to deplete comex physical reserves and stimulate panic buy.

JRobby's picture

Oh NO!

Economic growth and inflation in a fiat currency end of debt super cycle scenario!

It's just blips on computer screens and we were warned.

de3de8's picture

All together now: boo frickin hoo

d edwards's picture

Things are really f ed up when economic growth is seen as a bad thing!

bada boom's picture

You mean issuing more debt for more fake growth.  What growth are you talking about?

Leveraged Algorithm's picture

We will see how Bill Gross and friends do in the next decade without the wind at their back... No value added.

Clock Crasher's picture

Next week same script

Substitute the word "bond" with "stock"

Long Vix @ single digits

spastic_colon's picture

blow off market top for next couple weeks.


Maybe the "markets" can now move up to meet the inflation reality and not the phony CPI; its been artifically propped up just waiting for the opportunity.

scoutshonor's picture

And this could be what finally causes the dumpster fire that is D.B. to erupt into a right raging inferno.

wmbz's picture

Easy come,easy go!

spanish inquisition's picture

Wait a sec, hold up.... I just read that Snopes has debunked the myth that Trump won.... . .   /s

d edwards's picture

Things are really f ed up when economic growth is a negative!

Clock Crasher's picture

By the way if this trend continues gold is going sub 1,000

Gold +0% off the headline above

"They" saw how many TENS OF MILLIONS of Americans are measurably retarded intellectually

Thought to themselves "we CAN actually pull this off"

Clock Crasher's picture



youre gonna need it

Grandad Grumps's picture

Normalization is good.

The banks have been raping the world through absolute control of price for waaaayyyy too long.

gimli's picture

National debt increases 5.3 trillion with rising rates? Who's paying the interest?

bada boom's picture

The government, right? /s

Wahooo's picture

What's all this talk about fiscal stimulus? We've been living that via trillion dollar wars and trillion dollar healthcare programs. So Trump's going to do even more QE?

Clock Crasher's picture

A lot more

Markets are smarter than every analyist combined

Markets front running Trump hyperinflation management of the dollar

We need to install someone who can sell the productive Americans on stagfation

Option 1 ... Hillary

Option 2...  -OPTION2! OPTION2!!

Clock Crasher's picture

I wonder where that 1/3rd Trillion went?

(Looking at Dow new 52week highs)


Carl LaFong's picture

If they're correct, why isn't gold at $1,500 right now? When the gold market figures this out, it will overwhelm the central banks because supply of physical gold and silver will not be enough. Should be interesting...

bada boom's picture

We know why, maybe Julian will release some emails about it in the future.  Right now, the banks are spinning the trump victory to unload stocks, at a nice profit, on the common folks so they can crash it again at a later date.

Carl LaFong's picture

the debt will not increas if the federal budget actually shrinks... Reagan failed to get congress to stop spending. Let's hope Trump is more successful.

Knave Dave's picture

Why on earth would you think for even a second he is going to be any more successful, when just like Reagan, he's not even proposing a balanced budget. This is fool's thinking. He is proposing a budget with an intentional mammoth deficit; therefore, he'll get a mammoth deficit.

You were fooled by Reagan to think that congress would have to cave in and do the balancing for him, since he never proposed anything remotely balanced; and it didn't. You were fooled by George W. Bush to believe that you could slash taxes and not increase the deficit, and the deficit exploded. 

Fool me once, shame on you. Fool me twice, shame on me. But what is it when someone manages to fool you with the same budgetary voodoo for a third time?

whatamaroon's picture

My REIT's are getting monkey-hammered along with bonds.

RMolineaux's picture

Apparently, the bond market is taking a uni-dimensional view of expected fiscal policy by the new administration.  The market seems to believe that Trump´s infrastructure proposals will expand the budget enormously, while everything else remains the same.  I hope that his advisors have something better to offer:  infrastructure investments offset by reductions in military waste.  If Trump is serious about making America great again, the best way to do that will be to reduce US global military ambitions and replace them with domestic policies more worthy of a republic than an empire.