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Bonds telling less bullish tale than stocks

USA TODAY US Edition - - MONEY - Adam Shell @adamshell USA TO­DAY

The stock mar­ket is say­ing ev­ery­thing is A- OK in the fi­nan­cial world, but the U.S. gov­ern­ment bond mar­ket is telling a dif­fer­ent, per­haps darker, story.

Bulls drove the Dow Jones industrial av­er­age to a clos­ing high Mon­day for the 12th con­sec­u­tive trad­ing day. The last time the Dow went on a sim­i­lar record­set­ting run was Jan­uary 1987.

Stock pros’ op­ti­mism is twofold: a recog­ni­tion that the econ­omy re­mains in solid shape and a be­lief that Pres­i­dent Trump will be able to get his pro-growth eco­nomic poli­cies en­acted.

But that un­wa­ver­ing op­ti­mism is not be­ing shared in the bond mar­ket. Bond yields have been fall­ing in re­cently, which means prices have been bid up by in­vestors. Bonds are viewed as less­risky, less-volatile as­sets com­pared to stocks. Nor­mally, in­vestors flee bonds in good times and move their cash to risk as­sets such as stocks, which of­fer big­ger re­turn po­ten­tial. Mon­day, though, the yield on the 10-year Trea­sury fell to 2.37%, two weeks af­ter top­ping 2.5%.

One the­ory for the stock-bond dis­con­nect is bond in­vestors be­lieve Trump’s fis­cal stim­u­lus plans might be de­layed or not as big as pre­vi­ously be­lieved, An­drew Hunter at Cap­i­tal Eco­nomics says. The U.S. Fed­eral Re­serve, th­ese bond pros say, might not need to be as ag­gres­sive with in­ter­est rate hikes. And that prompts the ques­tion: If the “Trump bump” isn’t go­ing to be as pow­er­ful as forecast, why is the stock mar­ket still surg­ing?

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