the sudden surge in long-term interest rates has investors speculating once again about a turn in the long decline for bond yields<u+2014>with a lot at stake for companies and consumers. many u.s. mortgage rates are tied to 10-year bond yields, and higher yields can mean higher borrowing costs for companies. rising rates make the u.s. dollar more attractive, risking capital flight out of developing countries. bond yields shot up again monday. the benchmark 10-year u.s. treasury note touched 2.30%, up from a close of 1.867% on election day. that move would rank among the sharpest jumps for a similar period since 2008. the yield settled at 2.224%, its highest level since january. average rates on 30-year fixed conforming mortgages on monday hit 4%, also the highest since january, according to mortgagenewsdaily.com , and up nearly 0.4 percentage point since the election. while still only roughly half the average over the past 45 years, according to freddie mac, the quick rise has lenders worried that home loans could become more expensive far sooner than anticipated. debt issued by u.s. companies has been hit as well. while the s&p 500 is up 1.2% since last tuesday, the ishares iboxx $ investment grade corporate bond etf has fallen 2.5%. the ishares iboxx $ high yield corporate bond etf , which tracks bonds issued by junk-rated companies, fell 2.2%. the question is how far those markets have to run. rates on mortgages and junk-rated debt are still low by historical standards, as are yields for benchmark treasurys, which only now are returning to the levels at which they opened the year. <u+201c>there has been a huge repricing in the bond market, as we have a new game in town,<u+2019><u+2019> said jason evans, co-founder of hedge fund ninealpha capital lp in new york. <u+201c>but there are lots of crosscurrents,<u+201d> he said, including uncertain policy details from president-elect donald trump. mr. evans said he pared back wagers on higher yields monday as the pace of the rise over the past week was sharper than he had anticipated. the jump in yields was kicked off by the surprise election-night victory by mr. trump, who has advocated infrastructure spending , tax cuts and lighter regulation to promote jobs and boost the u.s. economy. analysts have interpreted those remarks as a signal mr. trump would push the u.s. government to borrow and spend. recent survey data also has shown an upturn in global manufacturing . those things have counterbalanced the voracious demand for safe government debt spurred by central-bank bond buying and political shocks like the u.k.<u+2019>s vote to leave the european union. the world should welcome higher long-term bond yields insofar as they signal a brighter outlook for economic growth and a return to moderate inflation after years of fear about falling consumer prices. central banks have been trying hard<u+2014>especially in europe and japan, without much success<u+2014>to drag inflation higher. the long run of low rates also has battered banks, pension funds and insurance companies. but metrics that use market data to gauge inflation expectations are rising. in the u.s., the 10-year break-even rate<u+2014>the yield premium investors demand to hold the 10-year treasury note relative to the 10-year inflation-protected security, rose to 1.93 percentage points during monday<u+2019>s session, a two-year high. at that level, it suggests that investors are expecting the u.s. inflation rate to be 1.93% on average over the next 10 years. the break-even rate fell below 1.4% shortly after the brexit referendum, but is now moving toward the fed<u+2019>s 2% inflation target. investors are betting that expectations for higher inflation and growth could push the federal reserve to raise interest rates at a faster clip than previously anticipated. fed-funds futures, used by hedge funds and money managers to place bets on u.s. interest-rate policy, suggested an 86% probability of a rate increase at the fed<u+2019>s december meeting, according to data from cme group . the chances were pegged at 81% last week. the yield on the two-year treasury note, highly sensitive to the fed<u+2019>s policy outlook, rose above 1% monday morning to the highest level since january. it later was at 0.984%, up from 0.906% thursday. treasury markets were closed friday. the sharp rise in bond yields has been painful for investors who bought at record-low yields this summer. this year through july 8, when the 10-year yield settled at a record low, the treasury market had handed investors a total return of 6.23%, according to bloomberg barclays us treasury index. but in the first 10 days of november, the index logged a decline of 1.57%, pulling the return for 2016 down to 2.29%. total return includes bond price gains and interest payments. some investors expect the bond rout to subside. sluggish global growth and easy-money policies are powerful forces keeping yields down. even after spiking, the 10-year german bund yields a mere 0.3%. japan<u+2019>s extreme monetary policy has kept its 40-year bond yielding just 0.6%. previous yield jumps, most notably in the spring of 2015, quickly melted away. mitul patel, head of interest rates at henderson global investors, said the unexpectedly poor performance from bond markets has the potential to lead to outflows from the asset class. that in turn could raise yields to the point investors start buying again, he said. some analysts say higher yields would attract interest from pension funds and life-insurance firms, which need high-grade long-term debt to match their obligations such as paying retired workers. <u+201c>until there is greater clarity on the issues, we are advising investors not to overreact,<u+201d> said james demasi, chief fixed-income strategist at stifel nicolaus co. corrections & amplifications: treasury yields, which rise as prices fall, are hovering around their highest level since early january after recording their largest one-week gain in more than three years following mr. trump<u+2019>s victory. an earlier version of this article incorrectly stated that the gain was the largest in more than three months. (nov. 14) write to min zeng at min.zeng@wsj.com and christopher whittall at christopher.whittall@wsj.com
government bond rout deepens on trump<u+2019>s economic plans - wsj
min zeng christopher whittall