It’s surprising how we have experienced the worst bond crash in 15 years after Donald Trump’s victory in the Presidential election. Analysts have warned that the coming week is going to be even more worse, Global Bond investors have had an awful time as trillions of dollars of wealth have been wiped out. The investing community has anticipated higher inflation and hence investors are asking for higher interest rates. Learning from history, it’s obvious that high interest rates always result in a slow economic growth. This is because economic activity slows down every time borrowing money becomes expensive.
The Obama’s administration is to blame for the consequences; Obama’s administration set-up the next president for the major recession. The bond crash will accelerate the process. This is because in the bond market whenever the yields increase, the price decreases and the decrease in bond prices is bad news for economic growth.
In the recent past there has been a trend where the yields are soaring in the past weeks and the yield based on 10 year Treasury notes has increased with a percentage since July.
There is a huge connection between the financial system and the yields on U.S. Treasury notes, this is impacting even the mortgages; for instance, the average rate on 30 year mortgages is increasing rampantly.
A 2.36% increase in the 10-year Treasury yield was noticed on Friday’s late trading which is the highest since December 2015; the increase was a 66 point since the presidential election, this is a one percentage increase since July. The 10-year yield is a crisis on its own since it will result in a rate increase by the Fed in the month of December following a year of flip-flopping.
The effects will be very mild; such will include the continuous mortgage increase that might lead to another housing crash in future. This will have a negative impact on the credit cards, auto loans, and student loans. The economic system will also be affected drastically since borrowing money will be costlier, slowing down the economy.