Matt Krantz

USA TODAY

Bond investors lost more than $1 trillion on global bonds as they braced for changes by President-elect Donald Trump, which could result in higher interest rates and more inflation.

More than $1.1 trillion was erased from bond holdings around the world this election week to knock their value to $48.1 trillion, according to a Bloomberg analysis of the Bank of America Global Broad Market Index. Bond investors have only lost that kind of money in a week twice in the past two decades, says Bloomberg.

The bond-market drama can be seen in prices of U.S.10-year Treasuries which fell this week to push the yield investors demand on their investments up 0.39 percentage points to 2.15%. That broke past the critical 2% level for the first time since January, based on the U.S. Treasury Constant Maturity index, showing bond investors sense some major changes coming from the Trump Administration.

The U.S. bond market is closed Friday for Veterans Day, but investors have been reacting to the week's major moves. Bonds are suffering as stocks rally on what's expected to be stronger growth. Standard & Poor's 500 stocks added $168 billion in market value since the election. "The selloff (in bonds) is wicked," says Marilyn Cohen of money management firm Envision Capital Management. "It's a reaction to the Trump presidency."

Dramatic shifts by the usually slow-moving bond market are providinga front-row seat for viewing investor expectations of a Trump Administration, including:

* Higher interest rates. Traders are now 76% confident the Federal Reserve will boost interest rates in December, according to CME FedWatch. The certainly jumped from 71% Thursday and was already on the rise. Traders were increasingly expecting a rate hike in December, but additional and faster rate hikes going forward are looking more likely, says Jay Mueller, portfolio manager at money-management firm Wells Capital Management. Greater spending on infrastructure and defense could stimulate the economy, prompting the Fed to "keep a lid on inflation and be less likely to drag feet on rate hikes," he says.

* More deficit spending and inflation. Vows by Trump to increase government spending on projects will be "expensive" even if only a fraction of what was promised is done, Mueller says. At the same time, Trump has promised to greatly reduce individual and corporate tax rates. The combination likely results in higher deficits, Mueller says. Bond investors are extrapolating that to mean the government will borrow more money and boost the supply of bonds, Cohen says. "Deficits were already starting to track up, and they could do more depending on policy decisions," Mueller says.

* Good times for financials. Trading in highly rated bonds issued by banks and finance firms have been the most active among the major sectors, says market tracking serve MarketAxcess. Banks could benefit if inflation and interest rates rise. The difference between short-term interest rates and long-term interest rates, the spread banks profit from, has already steepened. Yields on long-term 30-year Treasuries jumped this week by the most since January 2009, says Bloomberg. Lighter regulation of banks is also seen as a benefit.

Investors should remember that Trump's presidency is still an unknown and investors' bets could prove wrong, says Roger Lister, chief credit officer for sovereign ratings at DBRS. "Much remains to be seen as campaign rhetoric is translated into policies," he says.