OPEC deal likely to aggravate selloffs in bond market

The selloffs in the bond market around the world that began after Republican candidate Donald Trump won the US election in the fear of tighter monetary policies and higher inflation likely to exacerbate after both OPEC and N-OPEC countries secured a deal to cut production by more than 1.75 million barrels per day. The oil price has jumped 20 percent since the deal was announced on November 30th. Over the weekend N-OPEC producers have promised a cut of 558,000 barrels of oil per day and oil price is up almost 5 percent today.

The increase in oil price is likely to boost inflation expectations around the world and will also push actual inflation higher. US 10-year breakeven inflation has reached 1.96 percent, the highest level since October 2014. 5-year,5-year forward inflation expectation curve has reached 2.08 percent, the highest level since July last year. Inflation is still at a low level compared to history; however, the trend is clear. The actual inflation in the Euro area has reached the highest level in 31 months. According to the latest survey, the consumer inflation expectation has reached 2.8 percent, the highest since July 2014.

Today, 10-year US treasury yield has jumped above 2.5 percent, for the first time since 2014.