00:00Financial markets' strong reaction to Donald Trump's projected return to the Oval Office
00:05included a spike in the value of the dollar and a sharp selloff in fixed income, hinting
00:10at both investor optimism at strong economic growth and concerns about inflation.
00:16The U.S. dollar index, which tracks the American currency's exchange rate against a basket
00:21of six other developed market currencies, rose 1.8% to about $105.30 by around 8 a.m.
00:30Eastern Time, registering its highest level since early July.
00:35And bond yields spiked with the benchmark 10-year Treasury rising 16 basis points to
00:40a four-month high of almost 4.5%, the largest daily jump in 10-year yields since April.
00:48Higher bond yields point to a fixed income selloff as investors demand higher annual
00:53payouts to hold government debt.
00:56The dollar's rise is partially a reflection of the protectionist trade policy endorsed
01:00by Trump, and the Treasury is in part a result of investors moving money into riskier assets.
01:07But there's also a more pessimistic reason for the movements.
01:11If debts climb under Trump, coupled with concerns about the impact on goods prices due to tariffs,
01:16inflation could remain elevated for longer than previously expected, which in turn would
01:21likely cause the Federal Reserve to pump the brakes on its interest rate-cutting cycle
01:26kicked off in September.
01:28So lessened rate-cut expectations push up bond yields as traders price in interest rate
01:33cuts closer to today's 4.75% to 5% in the medium and long run, and higher expected rates
01:41simultaneously drive up the value of the dollar as the likelihood of cheap borrowing costs
01:46in low-rate environments decreases.
01:49For more on this story, read Derek Saul's article on Forbes, linked in the comments.
