The U.S. bond market experienced significant turbulence following Donald Trump's election victory, prompting a warning from Morgan Asset Management's bond chief. Concerns arise that bond yields might reach levels potentially threatening the stock market's record growth.
After Trump's win, bond prices dropped sharply as the market speculated that his policies, including tax cuts and tariffs on imports, could reignite inflation. Although the 10-year bond yield initially soared to 4.48% before easing, Bob Michele, Chief Investment Officer of Global Fixed Income at Morgan Asset Management, cautions that yields could climb back to 5% if Trump's anticipated policies are implemented.
Vincent Mortier, Chief Investment Officer at Amundi SA, also indicated that such a yield level could shift capital from stocks to bonds. Michele remarked that a 5% yield had previously proved challenging for the market to absorb. He anticipates stabilization at around 4% for the 10-year yield in the short term as investors buy on dips. However, he warns of potential sell-offs once the new government takes office and policy proposals are realized.
Paul Quinsee, head of global equities at Morgan Asset Management, views the risk of rising bond yields to the stock market as minimal. Despite valuation concerns, he expects robust corporate profits to continue supporting equities, forecasting a 12% to 13% earnings growth next year.
Michele remains skeptical, suggesting that if Trump's policies lead to higher inflation, the Federal Reserve may need to intervene by raising rates further. He foresees a point where interest rates could exceed the levels sustainable by profit improvements and stock valuations.
