Government bonds under pressure around the world
Sovereign bond yields continued heading north as investors moved to factor-in the impact on sovereign bond markets of increased deficit spending in the US.
As of 1249 GMT the yield on the benchmark 10-year Gilt was up by nine basis points to 1.45% and that on similarly-dated Bunds by six basis points to 0.37%.
Italian bond yields were faring even worse, jumping by 17 basis points to 2.19%, and those on Spanish bonds by 14 basis points to 1.62%.
Commenting on the possible scenarios for fiscal expenditures under the new US Administration, Morgan Stanley said the most likely outcome
was that trade protectionism would go little further than strong rhetoric, while Trump would deliver measurable tax reform and infrastructure spending that, on net, would provide a healthy lift to the economy and enable a pick-up in the pace of monetary policy normalisation.
Under such a scenario, US GDP growth would be lifted by 0.3 percentage points in both 2017 and 2018, while the Federal Reserve would hike rates two times in 2017 and three times in 2018, Morgan Stanley said.
Nevertheless, other possible outcomes ranged from "little measurable impact" on activity to a slowdown to "far below stall speed".
Similarly, Goldman Sachs believed a 'benign' scenario was possible under which economic growth was boosted by as much as half a percentage point between 2017 and 2019, with only marginally higher inflation, but other scenarios included stagflation.
Against that backdrop, on Monday ratings agency Moody's said the outlook for sovereign debt globally in 2017 was "negative", due to expectations for low economic growth and a continuing shift towards increased government spending that would increase already high public sector debt.