Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

The bond market is voting with its feet. A Republican President, House and Senate suggest gridlock might be over, so President Donald Trump may be able to make good on his acceptance speech pledges:

"We're going to rebuild our infrastructure...we're going to put millions of people to work as we rebuild."

A tax-cutting and big-budget extravaganza means Treasuries will have a hard time staying higher. They're far from panic levels, but the curve has steepened sharply.

Spending Ahoy
Steeper Treasury yield curve reflects Trump's pledge to boost infrastructure spending
Source: Bloomberg

German government bond yields have fallen, underscoring their role as the European destination for risk-off trades. The flip side of this story can be seen in the relatively modest yield gains in peripheral debt.

Yet even this initial, somewhat-muted panic is subsiding. Europeans are Brexit veterans, so Trump's "Brexit plus plus plus" isn't quite the same reason to hold fixed income as some form of haven.

This Is What Safety in Europe Looks Like
Yield jump in riskier government bonds vs Germany reflects demand for a haven after Trump's election
Source: Bloomberg

Which leads us onto the Federal Reserve. With the 2-year U.S. Treasury yield little changed, that suggest the chances of the Fed hiking are still intact. But Janet Yellen's Fed will have to flex its independence and hang tough by forging ahead with increases if Trump forces open the fiscal spigot.

If this minimal bond-market reaction doesn't last, it would make sense for central banks to step in and tame any wild swings. But they can only control so much...and they certainly can't control the uncontrollable. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Marcus Ashworth in London at

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