Jonathan Mondillo, Global Head of Fixed Income, abrdn, reflects on debt markets and shares his analysis with us following the Trump victory in the US election as follows:
“Market moves in reaction to a second Trump term in the White House were largely as expected. Equity markets are rallying on optimism around growth, and US Treasury yields are up with the yield curve steepening and EM FX weakening. Whilst the exact shape and size of tariffs and tax cuts are still unknown, markets have already moved to reflect the fact they will be enacted. Expectations of a more relaxed regulatory environment have also supported the banks and energy names so far.
“While we remain a bit cautious given that the outcome of the House of Representatives has yet to be determined, we are constructive on credit more broadly. Valuations may be stretched across much of DM and EM markets, however, for yield buyers we still feel the asset class remains attractive over the longer term with yields trading at the higher end of the recent range, and interest rates still set to fall.
“It is likely the House will end up in the control of the Republicans, as such we would expect to see a more ambitious agenda for the incoming President. While trade and immigration policy are largely within the control of the Executive Branch, a red sweep would put both corporate and individual tax proposals that had been talked about on the campaign trail firmly on the agenda in the important first 100 days of a Presidency. The interplay between trade tariffs and tax cuts will depend to what extent both are enacted, as tariffs act as a headwind to growth while tax cuts are more supportive. Curves steepened in the first hours during and after the vote count, and have continued to do so today. This is something we think should continue into the long term, particularly for very long dated maturities where there is going to be upward yield pressure.”
