The yield on the 10-year Treasury Note will be 2.5% to 2.75% a year from now if President-elect Donald Trump pushes through his proposed tax cuts and fiscal-spending policies, said Michael Kushma, chief investment officer for global fixed income at Morgan Stanley Investment Management.
That yield would be between 23 and 47 basis points higher than where it closed at on Nov. 17 at 2.28%. The 10-year yield increased five basis points to 2.33% at 12:35 p.m. on Nov. 18. The 10-year Treasury is an indicator for
A strengthening dollar and Trump policies that curb trade may hurt growth and limit the increase in yields, Kushma, who helps oversee $406 billion, said in an interview in Singapore on Nov. 17.
"We're still worried about rising U.S. yields," he said. "In the short term, we think they've peaked. They could easily go up again."
Alternative investments include high-yield bonds and non-agency mortgage-backed securities, Kushma said.
"High yield is a good place to hide because it's more cyclically sensitive than interest-rate sensitive," he said.
Bonds around the world headed for their steepest two-week loss in at least 26 years as the election results sent inflation expectations surging.
The Bloomberg Barclays Global Aggregate Index fell 4% in the period through Nov. 17. It was the biggest two-week rout in the data, which goes back to 1990. Federal Reserve Chair Janet Yellen fueled the decline by saying on Nov. 17 that an interest-rate hike could come relatively soon.
"We maintain our short position in Treasuries," said Mohit Kumar, head of rates strategy at Credit Agricole SA's corporate and investment banking unit in London, referring to bets an asset's price will decline. "That said, we don't expect a sustained selloff from here. Valuation is not rich anymore and is close to fair."
"Trump is a game changer," Park Sung-jin, the Seoul-based head of investment at Mirae Asset Securities Co., which oversees $7.61 billion. "I was bearish, but the current level is more than I expected. It was harsh."
The selloff has gone fast enough that it'll probably pause before yields press higher in 2017, Park said.
The U.S. central bank was close to lifting interest rates as the economy continued to create jobs at a healthy clip and inflation inched higher, Yellen signaled when she addressed lawmakers on Nov. 17.
The president-elect's pledges include tax cuts and spending $500 billion or more over a decade on infrastructure, a combination that's seen as spurring quicker growth and inflation in the world's biggest economy. Trump has also blamed China and Mexico for American job losses and threatened punitive tariffs on imports.
The difference between yields on 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, rose to as much as 1.97 percentage points this week, the highest level since April 2015.
