From Lonnie Adams of Sierra Pacific Mortgage:
“The surprise election of Donald Trump as our next President has created extreme reaction in the financial markets. As financial analysts and traders began to focus on details of what a Trump administration will try to accomplish the analysts and traders began making bets on the areas of the market that will benefit, as well as areas that will experience a potential negative impact.
With the new administration’s emphasis on rebuilding US infrastructure, providing tax relief, and providing relief from existing burdensome regulations the markets have priced in a significant improvement in the US economy. These are the reasons that today, the US equity markets closed at new highs and US treasury bonds and notes continued to get pummeled. Markets are anticipating stronger economic growth and higher inflation, both of which lead to higher interest rates.
Keep in mind, the Trump administration will not be in place until late January 2017, and none of the policies and changes noted above have been implemented. In addition, the European Union is still struggling with economic growth as are many developing markets. What we have witnessed the past two days is the market’s guess of what is to come. It remains to be seen what will actually happen.
In the interim, volatility reigns and we may see the yield on the 10 year note rise to 2.35% before we get a meaningful reversal in bond market sentiment.”