Traders backing short-dated debt to outperform longer maturities encouraged by prospect of interest rate cuts
The growing prospect of Donald Trump winning the US presidential election in November has helped revive a popular hedge fund bet on Treasury yields, in an echo of the so-called “Trump trade” that rocked global markets after his 2016 victory. Investors have been putting on positions in anticipation that the former president’s tax-cutting and pro-trade tariff agenda could eventually lead to higher inflation and a greater supply of longer-dated government bonds.
Meanwhile, the two-year yield has dropped from as high as 5 per cent in late May to 4.46 per cent as the market has again turned more optimistic on the prospect of US rate cuts. Investors are now pricing in two or three quarter point cuts this year after a series of data reports showing that inflation in the US is slowing and unemployment is ticking up.
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