Bond markets prepare for Trump scenario

After US President Joe Biden’s disastrous television debate performance, Wall Street banks have begun to weigh the impact of a potential Donald Trump victory on the bond market. Wall Street strategists are expressing expectations of persistent inflation and higher bond yields following a Trump victory. Morgan Stanley strategists including Matthew Hornbach and Guneet Dhingra have expressed the view that long-term bond yields will rise more than short-term ones. The strategists, who say that a Trump victory could mean more interest rate cuts and fiscal expansion from the Fed, said this would put upward pressure on long-term bond yields. Barclays strategists Michael Pond and Jonathan Hill, on the other hand, said that the best response investors can give to a Trump victory is to hedge against inflation. According to Barclays, five-year bonds indexed to inflation will outperform standard five-year bonds. Goldman Sachs, on the other hand, said that contrary to the general belief that the yield curve will steepen with the rise in long-term yields, a flat yield curve scenario could occur with a Trump victory. Goldman strategists including George Cole and William Marshall think higher Trump tariffs will hurt growth.