Trump’s election saw Treasury yields rise sharply but stabilise by the end of the week, with the VIX index dropping to its lowest since the end of September and the dollar near-consistently rising since 5 November.
Between the start of October and 11 November, the 10-year Treasury yield rose from 3.8% to 4.31%. Post-election, these yields ended the week eight basis points lower while rate-sensitive two-year yields rose by five basis points. “In our view, the increase in yields has gone too far and offers a chance for investors to lock in attractive yields as the easing cycle continues,” Mark Haefele, global wealth management chief investment officer at UBS, stated.
Haefele warned that “investors should brace for swings ahead”; uncertainty could lead to increases in volatility as markets prepare for Trump to outline his policies over the coming weeks. “However, it is worth remembering that during his first term, he used the performance of the S&P 500 as a barometer of his success,” he noted.
While investors are confident that the potential for increased corporate taxes and regulation is no more, issues of trade tariffs, immigration policies and the geopolitical impact of Trump’s election still abound. This is of particular concern regarding China, which is expected to face large export tariffs in Trump’s second term.
Federal Reserve chair Jerome Powell has assured that decisions around rate cuts will not be impacted by the election results, and UBS agrees that it does not expect to see any immediate changes in outlook – especially given the aforementioned policy uncertainty.
“We expect another 25bp cut in December and 100bps of easing in 2025. At the margin, the Fed may slow the pace of rate cuts if it believes that potential changes to migration, trade, or fiscal policy may lead to higher inflation,” Haefele said.
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