首场辩论后，华尔街兴起了所谓的“特朗普交易”，预期其背后共和党施加的关税、移民和赤字政策将带动长期美债收益率走高。花旗、摩根大通和摩根士丹利等银行的策略师们纷纷看好这一交易。Wall Street major banks have collectively spoken out, stating that the normalization of the US yield curve - where the slope becomes steeper - will be the most important trade in the second half of this year.
Investment banks' reasoning is mainly based on two factors: the US presidential election and the Fed's interest rate cut.
Analysts pointed out that President Biden's poor performance in the first debate on June 27 seemed to pave the way for Trump's return to the White House.
After the first debate, Wall Street started the so-called “Trump Trade,” expecting the long-term US bond yields to rise due to the tariffs, immigration, and deficit policies imposed by the Republican Party. Strategists from Citigroup, JPMorgan, Morgan Stanley and other banks are bullish on this trade.
On Friday, the non-farm report released a new signal of cooling in the job market, boosting the expectation of the Fed's interest rate cut later this year. This trade received bullish news again as short-term yields fell sharply.
It is worth noting that after the non-farm report was released, a closely watched yield curve indicator, the spread between 5-year and 30-year US Treasury bonds, reached its highest level since February this year.
Considering that loose monetary policy is seen as the main driving force for the normalization of the yield curve, the market is closely watching the CPI data to be released this Thursday to find more conclusive evidence of a slowdown in inflation, which is a key factor supporting the Fed's interest rate cut.
Wall Street expects that the year-on-year growth rate of the US CPI in June is expected to hit a record low since January this year. The Fed has previously stated that it needs to see more explicit evidence of inflation decline before cutting interest rates. The June CPI data may partly dispel the Fed's concerns.
“Considering inflation and fiscal policy factors, the (yield curve) may continue to steepen” said Cindy Beaulieu, Chief Investment Officer of Conning North America.
Although the election reignites the market's interest in the normalization of the yield curve, achieving a more sustained market trend requires a large interest rate cut by the Fed. Analysts said that if the Fed cuts interest rates significantly, it is expected to see a greater decline in short-term bond yields than long-term bond yields, leading to a phenomenon of “steep bull market”.
TD Securities expects that by the end of the year, the spread between 5-year and 30-year US bond yields will double from the current level, reaching 100 basis points. The bank has been insisting on this prediction since last year.
