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NEW YORK, Nov 14 (Reuters) - The bond market sell-off resumed on Monday on the heels of the worst week for U.S. Treasuries in more than seven years on growing worries that inflation will become a resurgent force under the policies of President-elect Donald Trump.
The yield on the 30-year Treasury bond, the security most sensitive to inflation expectations, shot above 3 percent for the first time since January. The gap between the yields on 10-year and 2-year notes rose from 1.21 percent at the end of last week to 1.26 percent, its widest since December.
The move follows a widespread sell-off last week in the aftermath of Trump’s victory in the 2016 presidential election. Treasuries suffered a drop of 1.9 percent on the week on a total return basis, their worst showing since June 2009, according to Bank of America/Merrill Lynch Fixed Income Index data.
Though selling moderated in the early hours of North American trading, analysts said they see no end in sight for the overall move lower in bond prices and higher in yields.
“I think there’s more to go. I think we’ve topped out as far as the value of bonds,” said Tom Simons, money market economist at Jefferies and Co. “Trump is talking about running an extremely loose fiscal policy, higher spending and lower taxes, and his trade and immigration policies suggest that the labor market is going to get even tighter. All of that adds up to a pretty high inflation environment in the future.”
Rising inflation hurts bond prices because it makes their future interest payments worth less.
Yields on 30-year bonds rose to a high of 3.067 percent, a peak not touched since December. Benchmark 10-year notes saw their yields rise to 2.302, also the highest mark since December.
“Nothing changes until it becomes clear that (Trump’s) policies are impossible to get through Congress or he backs off of those policies,” Simons said. “But that’s a story for early next year, not next week.”
While the sell-off most affected 10- and 30-year Treasuries, yields on 2- and 3-year notes rose to their highest levels since January, as investors largely expect the Federal Open Market Committee to decide to lift U.S. overnight interest rates at its Dec. 13-14 meeting. (Reporting by Dion Rabouin; Additional reporting by Dan Burns Editing by W Simon)
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