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There is continued excitement over potential US fiscal stimulus:

A bond-market gauge on Thursday hit its highest level since the summer of 2015. The 10-year break-even inflation rate indicated expected annual inflation of 1.89% over the next 10 years. That measure, reflecting the gap in yields between Treasurys and their inflation-protected counterparts, known as TIPS, was 1.73% two days ago, according to Tradeweb.

The yield on the 10-year Treasury note, which rises when bond prices fall, climbed another 0.05 percentage point on Thursday to 2.118%. It has jumped a quarter of a percentage point since before the U.S. election result, the biggest two-day rise since 2011. Nominal bond rates have been rising faster than those protected against inflation, meaning that inflation protection is increasingly viewed as the more attractive investment.
…
One spark for the latest inflation trade came when Mr. Trump mentioned infrastructure spending prominently Wednesday morning in his victory speech, investors say. Others believe efforts to repeal financial regulations enacted by President Barack Obama’s administration could expand bank lending activity, and that restrictions on trade could boost wages in an already strong labor market.

The New York Times has a bit more colour:

For the last few years, the world has suffered from a chronic shortage of demand, depressing inflation and interest rates worldwide.

If those conditions persist, a Trump administration may have some room to expand deficits without triggering a spike in interest rates that would undo any economic boost those deficits create.

But many economists don’t see it working out that way. Mark Zandi, chief economist at Moody’s Analytics, was skeptical in a much-discussed paper released earlier in the year estimating the economic impact of a Trump administration. He assumed that if Mr. Trump’s policies were taken at face value, it would increase the deficit from 3.5 percent of G.D.P. this year to more than 10 percent by the end of Mr. Trump’s term. He said this would cause the Federal Reserve to raise interest rates above 6 percent in 2018 to prevent inflation.

Who’s up for a 6% Fed policy rate? Who wants to know what will happen to the loony and Canadian house prices then?

This entry was posted on Thursday, November 10th, 2016 at 11:59 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.