How Donald Trump's Presidential Victory Could Impact U.S. Treasury Yields and Financial Markets
In a recent analysis by Edmond de Rothschild Asset Management strategists, it was suggested that Donald Trump's potential victory in the upcoming US presidential election could lead to a rise in long-term U.S. Treasury yields. This is mainly due to Trump's reported plans to impose tariffs on imports, particularly from China, which could result in price hikes and fuel inflation.
Additionally, Trump's immigration policies, aiming to deport criminals and encourage millions of immigrants to return to their home countries, could put pressure on the US labor market and the economy as a whole. This has led strategists to believe that the long end of the U.S. yield curve may not be as bullish due to the political risk premium associated with Trump's administration.
Historically, a rise in bond rates has often led to a fall in equities, as investors tend to seek safe-haven assets during uncertain times. Following a recent debate between Trump and President Joe Biden, where Trump gained a significant lead, ten-year U.S. Treasury yields surged to over three-week highs, nearing 4.5%. This was driven by market anticipation of a potential Trump victory.
Jacques Aurelien Marcireau, co-head of equities at Edmond de Rothschild, noted that the markets immediately reacted to the increased likelihood of Trump's re-election, adjusting their risk pricing accordingly.
In conclusion, investors should keep a close eye on the upcoming US presidential election and its potential impact on financial markets, particularly in terms of U.S. Treasury yields and equity prices. A Trump victory could lead to higher bond rates and lower equities, as investors navigate the changing political landscape and adjust their portfolios accordingly.