12 DECEMBER 2024
Keep a close eye on US bond yields.
The “Trump Pump” has seen risk assets, like equities and crypto, surge since his convincing election victory last month, but his economic policies could lead to much higher bond yields.
Borrowing costs surged during the first half of his inaugural term, albeit from a low base. The 10yr Treasury yield rose from 1.5% in late 2016 to a cycle-high just above 3% in November 2018 (red box).
It then fell sharply as tighter financial conditions destabilised the economy and markets, culminating in the 10yr yield hitting a record low 0.5% as the pandemic emerged in 2020.
Bond yields are starting at much higher levels this time around, limiting their upside given that the indebted global economy has never been so rate sensitive.
So a “buy the rumour, sell the news” pattern would be consistent with both the US dollar and bond yields heading lower in early 2025.
But if yields do continue their ascent, either because nominal GDP or inflation are picking up, brace yourself for a tougher investment climate next year.
Higher borrowing costs usually put a brake on equity prices, albeit with a lag.
The content of this communication is for information purposes only. Bentley Reid believes that, at the time of publication, the views expressed are a matter of opinion but cannot guarantee replication of depicted performance. Viewers intending to take action based upon the content of this communication should first consult with the professional who advises them on their financial affairs. Capital invested will be at risk, and you may get back less than you invest. Neither the publisher nor any of its subsidiaries or connected parties accepts responsibility for any direct or indirect loss suffered by a recipient as a result of any action or inaction, in reliance upon the content of this communication.
Key trends in portfolio management
Is India Leaving the “Fragile EM” Era Behind?
Discussion on the unrest in the Middle East
