US Markets

Boockvar: The bond bubble 'of epic proportions' will be a challenge for Trump's presidency

Trump's biggest problem? Unwinding 'epic' bond bubble: Boockvar

A Donald Trump presidency could hold significant economic benefits, but a major challenge for the administration will be a huge bond bubble on the verge of bursting, analyst Peter Boockvar said Friday.

"I'm optimistic that the regulatory noose around the economy is going to loosen up. It'll be bullish with lower taxes. The problem that Trump faces is that we have an unwinding of a tremendous bubble. This is the biggest bubble we've ever had that is now leaking," Boockvar said.

The Lindsey Group analyst told CNBC's "Squawk Box" that the bubble "of epic proportions" could cause rates to move up rapidly.

"The July lows in global interest rates we may never see again in our lifetime," Boockvar said. "We have to deal with the consequences of that shift higher in interest rates because the Fed and other central banks have created an economic construct and an asset-priced construct based on very low interest rates, so there has to be an adjustment."

And, with global growth generally sluggish and the cost of capital rising, Boockvar said the normalization of rates may not be felt until the second, third, or even fourth year of Trump's presidency.

Either way, Boockvar still believes that the end of the bond bull market is approaching, as he wrote in an opinion editorial for CNBC in September.

Look to double growth: Pro

Now that Trump has been elected president, markets are rotating in expectation of an increasingly pro-growth environment, Deutsche Bank chief U.S. economist Joseph LaVorgna said on "Squawk Box."

"You've seen a rotation out of the stocks that people thought could grow in a very soft environment — FANG, if you will," LaVorgna said.

That cluster of technology stock — Facebook, Apple, Netflix, and Google parent Alphabet — were trading lowerfollowing news that Trump had won the election.

LaVorgna said that the yield curve, which has recently been steepening, has historically been a good predictor of growth. The economist said business confidence may also improve in light of an administration that may loosen the regulatory reins on businesses.

"You're possibly unshackling a lot of businesses where sentiment has been very poor," LaVorgna said. "You could really harness ... the innovation, creativity and dynamism that arguably has been lacking for a while that now possibly can shift."

That shift could even double trend growth for a time, the economist predicted, to 3 or 4 percent.

The catalyst is also a shift in who controls and shapes policy, said David Lebovitz, global market strategist for JPMorgan Asset Management.

"We've been talking about passing the baton from monetary policy, monetary stimulus, which hasn't really worked, to fiscal stimulus, and now it looks like that's going to happen," Lebovitz told "Squawk Box."

"You're going to have lower taxes, you're going to have an increase in infrastructure spending. How we pay for it is another issue, but I think this is very pro-growth, at least for the next 12 to 18 months," he said.

In terms of the expected Fed rate hike in December, Lebovitz said that if rates do rise, they will finally be rising for the right reasons — for one, because growth outlook is looking better.

Still, LaVorgna contended, the Fed should maintain their slow pace in raising rates so as not to short-circuit or shock markets in a time of major transition.