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Global bonds suffer worst monthly meltdown as $1.7-trillion lost

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The 30-year-old bull market in bonds looks to be ending with a bang.

The Bloomberg Barclays global aggregate total-return index lost 4 per cent in November, the deepest slump since the gauge's inception in 1990. Treasuries extended declines Thursday as OPEC's agreement to cut oil production added to prospects of higher inflation. The reflation trade has been driving markets since Donald Trump's election victory due to his promises of tax cuts and $1-trillion (U.S.) in infrastructure spending. All this has prompted investors to dump debt that was offering yields near record lows.

Calling an end to the three-decade bond bull market is no longer looking like a fool's errand: the Federal Reserve is expected to raise interest rates again – and do so more often than once a year, inflationary expectations are climbing and there are hints global central banks may buy less sovereign debt going forward. Investors pulled $10.7-billion from U.S. bond funds in the two weeks after Mr. Trump's victory, the biggest exodus since 2013's "taper tantrum," while U.S. stock indexes jumped to records.

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"The market has moved with remarkable swiftness to price in the anticipated reflationary impact of a Trump administration," Matthew Cairns, a strategist at Rabobank International in London, said. "This has, in turn, prompted a notable rotation out of fixed income and into equities."

Still, Mr. Cairns cautioned the moves are "remarkable given the distinct lack of clarity as regards what policies the president-elect will actually pursue."

November's rout wiped a record $1.7-trillion from the global index's value in a month that saw world equity markets' capitalization climb $635-billion.

The yield on 10-year U.S. notes rose 56 basis points in November, the biggest jump since 2009, and was at 2.44 per cent late Thursday, after reaching its highest point since July, 2015.

The average yield on the Bloomberg Barclays Global gauge climbed to 1.61 per cent on Nov. 23, after touching a record low of 1.07 per cent on July 5.

"A lot of people are beginning to think that it is the end of the bull rally," said Roger Bridges, chief global strategist for interest rates and currencies in Sydney at Nikko Asset Management's Australia unit, which oversees $14-billion. U.S. 10-year yields may rise to 2.7 per cent in January, Mr. Bridges said.

The rise in yields shows the limitations of the quantitative easing policies at the biggest central banks, Mr. Bridges said. Bonds will be especially vulnerable if the European Central Bank discusses reducing its debt-purchase program at its Dec. 8 meeting, he said.

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The yield on German 10-year bonds climbed six basis points to 0.34 per cent on Thursday, while those on U.K. gilts rose six basis points to 1.47 per cent.

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