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Is this the beginning of a Treasury bear market?

10-year treasury yields have risen by more than 40 basis points to 2.25% since Trump’s election, with markets expecting yields to rise further towards 3% in 2017. “But if you look at long term history, consensus has been consistently wrong,” said Jonathan Yip, head of investment grade credit at Rogge Global Partners.

Speaking at the Expert Investor Norway forum in Oslo earlier this week, Yip said he believes the yield spike will be kept in check as international government bond investors will start to increasingly consider treasuries as the yield differential increases.

“A further yield rise to 2.5-3% is now the consensus, but I would take the other side of that trade. The Bank of Japan has capped their 10-year yield at zero, for example. If yields got to these levels, I’d see treasuries as a relatively attractive proposition,” he said.

Treasury yields may indeed not rise towards 3% as quickly as some expect, but it’s hard to argue US treasuries look like a compelling investment now. The tide seems to have turned against the asset class, at least that is what Norwegian fund buyers think. When they were asked which asset class is most at risk from a Trump presidency, a clear majority opted for US government bonds. Emerging market assets only came a distant second garnering 36% of the votes.

Gold attraction

Though developed equity markets have initially not responded quite as badly to the Trump triumph as some feared, Norway’s fund buyers find it a bit harder to identify asset classes that will profit from his rule. Though almost a third of delegates believe US equities will benefit most (compared to 9% who think US equities are most at risk from Trump’s presidency), it is probably quite telling that gold is believed to be the major beneficiary of Trumpian rule.

After all, geopolitical and economic uncertainty has hugely increased compared to 10 days ago, when markets were pricing in a Clinton victory. We will have to wait for Trump to set out his policy priorities before drawing any conclusions as how his plans will affect asset prices. However, markets already seem to have made up their mind.    

 “In the space of a week, markets have priced in everything good about Trump,” said Juozas Barauskas, investment specialist at Aviva Investors’ multi-strategy team. But, he added, they have been dismissing his anti-immigration and anti-trade rhetoric as mere campaign talk. Markets may indeed be a little bit ahead of themselves. Caution is therefore warranted. 

Here you can see a full overview of delegate voting results from Expert Investor Norway.

And here is a slideshow of photos taken at the event.