A sell-off in US Treasuries has sent ripples through markets from gold to currencies, as investors warn that volatility is “locked in” ahead of next month’s presidential election.
US government bonds are on track for one of their worst months in recent years, with 10-year yields moving up almost 0.4 percentage points to 4.2 per cent after strong economic data and an emerging “Trump trade” sent traders scrambling to redraw their expectations of the path of interest rates.
The reversal has come just weeks after the US Federal Reserve signalled that an era of easing had begun with a half-percentage point cut, prompting investors to expect at least a further quarter-point cut at both remaining meetings this year.
Now, stronger economic data and bets on the rising chance of a Republication victory leading to reflationary policies have prompted investors to scale back those bets.
Mike Cudzil, a portfolio manager at Pimco, said investors were “walking back some of the overzealousness” after the Fed cut.