European government bond yields continued to rise Monday as investors adjust assumptions for inflation and re-price credit risk in a long-dormant market following last week's victory for President-elect Donald Trump.
Ten-year German government bond yields, which move inversely to prices, touched a nine-month high of 0.38% Monday, extending a two-week stretch of declines that has effectively doubled the benchmark European borrowing rate. U.K. government bonds, known as Gilts, also touched multi-month highs, with 10-year yields trading at a six-month high of 1.49%.
European bond investors have a series of concerns to re-calculate amid one of the most spectacular fixed income sell-offs in recent memory, which has global fixed income portfolios nursing one-week losses of more than $1.2 trillion amid a comprehensive change in inflation projections.
President-Elect Trump's plans to reform corporate and personal taxes could, if pushed through a now-friendly Congress controlled by Republican lawmakers, provide a $9.5 trillion stimulus to the world's biggest economy over the next 10 years.
However, the unprecedented fiscal expansion - about half of U.S. GDP - could also add more than $5.3 trillion to the country's already staggering $14 trillion in outstanding debt, according to the Committee for a Responsible Federal Budget.
But for Europe specifically, investors also need to assess the myriad differences in country risk and predict the appropriate response from the European Central Bank, which has been buying more than €80 billion in private and government debt each month in order to hold down yields and entice investment directly into the real economy.
Movements in Italy's government bonds are a case-in-point, as 10-year bond yields race past a 52-week high to trade at 2.2%.