Post-Election Interest Rates: The Journey Begins...

By Rob Clarfeld, Contributor at Forbes

It’s still too early to determine the impact this historic election will have on equities—but the upward trend in interest rates seems far less ambiguous.

That being said, yields have been creeping higher since early summer, gained steam during the late days of the third quarter, and have exploded higher post-election. In fact, since Treasury yields bottomed in early July, the 10-year Treasury is up 98 basis points, half of which occurred post-election. Why are bond markets reacting so negatively to the ushering in of the Trump administration?  The simple answer is not so simple.

Key elements of President-elect Trump’s campaign rhetoric are weighing on the minds of investors. Fiscal stimulus in the form of infrastructure and defense spending, coupled with lower corporate and individual tax rates, facilitate the foundation for a more constructive and pro-growth US economy that likely will lead to higher inflation. Combined with other factors such as year-over-year increases in oil prices and wage growth, inflation is likely to heat up, and the bond markets are reflecting this concern. Some degree of higher inflation isn’t necessarily a bad thing; the Fed has been striving for growth-based inflation for some time, and by historical norms, even today’s increased yields still are quite modest.

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