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The volatility surge and the selloffs in the bond market post-Donald Trump’s victory in the United States that pushed that yield gap between a German 2-year bond and a French 2-year bond to the highest level in 24 months have worried the European Central Bank (ECB). Vítor Constâncio, the vice President at ECB said that the world has changed and warned of the risk of a rout in the European markets. He added that political instability in the United States could infect investor sentiment around the world and trigger a further surge in borrowing costs for the European government. According to ECB, the impact of Mr. Trump’s winning on the Eurozone is highly uncertain; hence the risk of further corrections in the bond market remains significant.
With regard to the impact of a Trump Presidency on trade Mr. Constâncio warned that global trade is already in a weak phase and if waves of protectionist measures arrive from the United States, it would be weaker and the world growth would suffer more.
The Federal Reserve and the European Central Bank (ECB) are in a different phase of monetary easing and the economies are at a different stage of recovery. If a Trump presidency and subsequent stimulus lead to a rise in bond prices, Europe would be badly hit.
