Income investors have a lot riding on the outcome of next week's presidential election, according to RBC Global Asset Management. The Federal Reserve 's monetary policy has largely driven the fixed-income market in recent years, rather than which administration is in place, explained Andrzej Skiba, the firm's head of BlueBay U.S.
Fixed Income. This year there is one factor that could change that: former President Donald Trump 's trade policy, he said. If Trump walks away victorious over Vice President Kamala Harris after the Nov.
5 vote, his expects trade policy will have a negative impact on the bond market, he said. Among Trump's proposals are a 20% blanket tariff on all imports and a 60% rate on Chinese imports. That's a much broader set of tariffs than when he was last in office.
"This time around we are talking about most trade partners and a majority of goods," Skiba said. Even if it was a 10% tariff, his calculations show that it could add up to an almost 1% bump in headline inflation. The fate of fixed income almost always lies with what will happen with inflation, Skiba said.
"One percent doesn't sound like a lot, but from a Fed perspective, it could make all the difference between being able to cut rates or not," he said. "It would be very significant in terms of forward policy." Positioning if Trump wins Investors have been moving further out on the curve to take advantage of anticipated rate cuts.
If Trump is the victor, Skiba would move towards short-duration sec.