Since election day, Fixed Income markets have been shaken by the prospects of fiscal stimulus and its inflationary repercussions. Inflation, once considered dead, is now front and center in the psyche of investors. While the details of Trump's infrastructure plans are scant, the transition from monetary stimulus to fiscal spending is likely to inflate prices at a time when wages are already rising and labor markets are tight. Meanwhile, Yellen's recent suggestion that the Federal Reserve may be willing to allow the economy to "run hot" has exacerbated the sell-off in Treasuries. Since early Wednesday morning, the ten-year Treasury has spiked 43 basis points, and all fixed-income subsectors have suffered.
Still, while all fixed income subsectors have moved lower in lock-step, this is likely to be a short-lived phenomenon. Given investor positioning, and the rising tide of inflation, we at Holbrook expect rates to continue to move higher