Wall Street strategists are urging clients to position for sticky inflation and higher long-term bond yields.
Already a subscriber?Financial giants from Goldman Sachs to Morgan Stanley and Barclays are taking a fresh look at how a Donald Trump victory in November could play out in the bond market.
Trump’s rise in the polls since Thursday’s debate means investors have to contemplate economic policies that could lead to more rate cuts from the Federal Reserve, along with a Republican sweep that leads to fiscal expansion and pressures longer-term bond yields higher, Morgan Stanley said.. Strategists Michael Pond and Jonathan Hill wrote on Friday that the clearest expression is a wager that five-year Treasury inflation-protected securities, or TIPS, will outperform standard five-year notes.
US Treasuries fell on Monday , pushing yields to the highest levels in more than a week, in what traders said was ongoing fallout from last week’s bump in the odds of a second Trump term. “While a term premia-driven sell-off has been consensus for how US yields should react to a Republican victory, we see arguments for flattening risk,” Goldman Sachs strategists led by George Cole and William Marshall wrote after the debate. They see investor focus shifting away from fiscal spending and towards the risks of higher tariffs, which are likely to weigh on productivity and growth as the election comes into view.
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