Call it the annus horribilis for bonds.

November 2016 will go down as the worst monthly meltdown in global bond prices, losing in excess of $1.7 trillion of value, or a 4% loss. Losses for the last two months stand at $2.8 Trillion. It's likely to get worse as oil prices rise and if the ECB cuts its debt-purchase program, according to Bloomberg. Compounding problems is the high likelihood that the Fed will raise interest rates before the year is out and president-elect Trump's economic program which is likely to generate inflation and a stronger U.S. dollar. (For more, see: Investor Warning: The Bond Rout May Not Be Over.)

Global Bond Rout

Bond prices are now in a bear market, with U.S. 10-year Treasuries seeing their yields jump by the most since 2009 in November. Similarly, The Bloomberg Barclays Global Aggregate Total Return Index lost 4 percent in the same period, the steepest drop since the index’s inception in 1990. This follows a decades-long bull run for bonds, as interest rates have been incrementally cut to record low levels in recent years around the world, with some bonds even carrying negative interest rates. (See also: How Negative Interest Rates Work.)

Bond prices and yields (interest rates) vary inversely, so as interest rates rise bond prices fall. According to Bloomberg,  "investors pulled $10.7 billion from U.S. bond funds in the two weeks after Trump’s victory, the biggest exodus since 2013’s “taper tantrum,” while American stock indexes jumped to records." During November, bond markets lost an aggregate $1.7 trillion in value. Stock markets rose, but only added around $650 billion in value, leaving a net loss of more than $1 trillion in global wealth. (See also: Global Bond Values Plummet by $1 Trillion Last Week.)

This market action stands at odds with central bank attempts, such as quantitative easing, to keep rates low in order to spur economic growth and employment following a weak recovery from the Great Recession.

The Bottom Line

November was the worst month for global bond markets, losing $1.7 trillion in value, and nearly $3 trillion over the past two months, reversing an almost 30-year bull market trend. This could signal a change to a rising interest rate environment marked by inflationary pressures, at odds with current central bank policy.

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