There are signs that the “Trump trade” has begun, BCA Research Says By Investing.com
Investing.com — U.S. Treasury yields hit a three-month high as traders weighed the path ahead for the Federal Reserve’s interest rate policy this year and assessed the potential outcome of the U.S. presidential election.
At 08:38 ET (12:38 GMT) on Wednesday, the yield on the benchmark 10-year US Treasury rose 0.04 percentage points to 4.246%, adding to a string of recent gains since the Fed eased its monetary policy. funds rate by 50 basis points from 4.75% to 5% in September.
Immediately after the Fed’s jumbo rate cut, traders were pricing in a full percentage point for further cuts in January. However, recent strong economic data and deficit concerns have led investors to lower these expectations, as markets now see closer to the halfway point of the reduction.
Yields, which are often at odds with prices, have sold off of late, pushing the dollar to multi-month highs and weighing against other currencies such as the euro and yen.
In a note to clients this week, analysts at BCA Research said the resurgence of the so-called “Trump trade” has also fueled the jump in yields so far this week.
Prediction markets such as Kalshi and PredictIt show that Trump is now the clear favorite to win the US presidential election on November 5. However, this bet receives scrutiny because it is separated from the national polls, which suggest that Trump’s Democratic rival Kamala Harris hold little profit with only a few weeks left of the campaign.
What is worse is that both candidates have been tied to several key constituencies that are expected to have a major impact on the election.
A victory for Trump, who has called for tax cuts, looser financial regulations and sweeping tariffs, could boost inflation and mean US prices may not fall as quickly as initially expected, analysts said.
“US bond yields are rising, US bond term premiums are increasing, the US dollar is strengthening, and US small caps are trying to exit. These changes may last for several months if Trump is re-elected,” the analysts wrote. of BCA Research.
They also said a “red sweep” scenario — in which Trump wins the presidency and Republicans gain control of both houses of Congress — will “raise greater uncertainty” about the outlook for inflation, public debt, and monetary policy.
“This ensures a higher risk premium for US bonds, that is, a broader term premium,” they said, adding that, outside of the US, exchange rates in emerging markets will fall and fixed income markets will “suffer” in the coming months. .
