Ballots to Bonds

The implications of the US elections on Fixed Income

Following the US election, what will the bond landscape look like around the world in the near term and the medium term? President-elect Trump should be able to implement much of his political agenda over the next few years. We think four themes stand out: Tariffs, Regulations, Tax Cuts, and Immigration. What we don’t yet know is the timing and the magnitude of these elements.

Nicolas Jullien, CFA, incoming Global Head of Fixed Income, and Charudatta Shende, Fixed Income Strategist analyse the implications of the US election on global fixed income markets and how to position your portfolios in this new environment.

We are cautious and prudent on US rates. While the Federal Reserve just cut rates, expect some upward pressure from the incoming Trump administration. Resilient growth should be supported by tax cuts, albeit with a bit of drag from tariffs. Inflation will feel stretched from three sources – tax cuts, tariffs, and lower immigration. Moving from ballots to bonds as we promised, we are underweight the US, based on the potential rise in rates and the likely increase in rate volatility.

We are more positive on EU rates. New US tariffs and other ‘MAGA’ policies could become a headwind for already-slowing growth, there is little room to increase already-high fiscal deficits, and we may even see disinflation, all elements pointing to declining rates.

For emerging markets, the picture is mixed. While the dollar is likely to remain strong, a negative for EM debt, we see some positive idiosyncratic stories. The bulk of the tariff issues are likely to hit China, where we are already structurally underweight. We are cautiously constructive and very, very selective.

How do we reach these conclusion? Watch our new video!

The Trump Triumph: