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“Trump Trade” has been betting on higher bond yields this year, as investors take a more bearish view of the new US administration's economic fallout from the world trade war.
The US currencies have slipped, and the Treasury Department has recovered since early January, disrupting widespread investors' expectations that President Donald Trump's trade tariffs and tax cuts plan will keep inflation and interest rates high.
“In spite of the mood, if you really zoom out earlier this year, you'll see a lot of things. [Trump] “We're looking forward to seeing you in the process of trading at Barclays,” said Jerry Minier, co-head of G10 forex trading. “It's causing people to reevaluate it.”
Investors pulled back from the popular Trump deal as presidential tariffs were less aggressive than feared. But many worry that the uncertainty caused by the Stop Start trade war could start to undermine trust in the US economy and undermine bullish market response to Trump's election in November .
Minier said the “average menu” of popular deals such as bets on the euro or Chinese, such as bets on the euro or Chinese, doesn't reward investors. “We need a dollar reason [rally] To continue the extension – at least for now, those things are being pulled apart,” he added.
Trump's inflation policy helped to promote large-scale rallies in the dollar bets that it could cut interest rates on US trading partners and reduce the Federal Reserve to curb growth. The US currency won 8% against its fellow baskets from late September to the end of the year.
According to an analysis of CME Currency futures contracts, asset managers reversed their net-long dollar position in December for the first time since 2017. But so far, US currency has slipped by 0.4%.
Expectations for higher inflation have also helped drive 10-year financial yields that move backwards from the second half of 2023 to the highest price.
But they're now back to 4.54% as the market focus has switched from inflation to fear that the US's vibrant economy could sway under the new president.
“There's a fundamental fear that growth could be slowing,” said Torsten Sloak, chief economist at investment firm Apollo, “can have a growth impact” in the trade war. I did.
The bond market is “strapped between fears that inflation could be a little higher due to the trade war and that US growth or global growth could slow down,” says JPMorgan said David Kelly, Chief Global Strategist at Asset Management.
This month, Trump retreated into the 11th hour of threats to impose swept tariffs on Mexico and Canada, allowing both countries to have 30 days of delays. However, he moved forward with an additional import tariff of 10% in China, and late Friday, the president will strike Japan with new taxes to tackle the trade deficit with the US most important allies in the Indo-Pacific He said that it can be done.
He also announced plans for a 25% tariff on steel and aluminum imports.
Emerging markets, a particular victim of the trade war and widely expected to be a stronger dollar, are hoped in recent weeks after a tough 2024 when several currencies touched multi-year lows I denied.
Since the launch of Trump's second period last month, Chilean pesos have won more than 3%, while Colombian pesos and Brazilian rials have risen more than 6% against the greenback.
Bank of America strategists have been actively transforming into emerging markets in the belief that bets on the most powerful higher dollars have been overgrown in terms of actual effective exchange rates since 1985 .
“It's about very extreme positioning, and a lot of tariff noise is already priced,” said David Hauner, bank head of global emerging market bond strategy.
“It's not that it couldn't get worse. Of course, it could, but given the round-trip over the past few weeks, it gave us a pretty good price for the time being.”
Investors say central banks in emerging markets have a range to reduce borrowing costs to support economic growth as aggressive interest rates in recent years tackle inflation. Mexico, the Czech Republic and India lowered interest rates last week.
Real interest rates, adjusted to inflation, are higher in many developing countries than in the US, and borrowing in dollars and investing in emerging markets is more profitable.
“No matter how you slice or dice, the local currency has become very cheap. Even if the dollar doesn't get weak from here, it just stabilizes,” says an emerging market just returning from Brazil. said the fund manager. For cheap assets.
