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“I like a low interest rate policy, I must be honest with you,” Donald Trump told the Wall St Journal yesterday. His comments have further fired up already strong US government bonds, with the effects spilling over into European debt this morning. Like their US counterparts, German 10-year bond prices are now around their strongest point of the year.
Mr Trump’s new comments are not the only weight on global bond yields. Among other things, geopolitical nerves and the failure of his healthcare plans have also imposed a longer-term weight.
Still, 10-year Bund yields have sunk by 0.02 percentage points so far today to 0.175 per cent. (Yields fall when prices rise.) That’s the strongest level for Bunds since late December.
US yields, which exert a strong gravitational pull on other core markets, now stand at 2.32 per cent, the lowest since mid-November.
Some have doubts this will last.
Markus Allenspach, head of fixed income research at Julius Baer, says:
The Federal Reserve is proud to be independent and we maintain our call for more rate hikes despite the latest words of President Trump. Accordingly, we see the latest move of US government bond yields as unsustainable against the backdrop of rising core inflation, low unemployment and the strong reading of cyclical indicators.
In addition, as Rabobank points out, it can be very hard to determine when to take Mr Trump at his word:
Rhetoric and reality are two very different things. Unfortunately, the market’s ability to accurately separate which is which when it comes to Mr Trump makes assessing his policies and the impact these are likely to have all the more challenging.