By Krishna Memani, CIO, Portfolio Manager
In hindsight, it is quite clear that I, and the markets for that matter, didn't assign a high enough probability to a Donald Trump election victory. Because if we had, it would be quite obvious that the near-term outlook for bonds was going to weaken irrespective of the U.S. Federal Reserve's (the Fed) tightening. Even if the Fed is gradual in its tightening, which I still very much believe it will be, the outlook for bonds, at least in the beginning, is not likely to be so sanguine.
A president who is committed to fiscal expansion, we should have assumed, would change the conversation from disinflation or deflation to inflation. That is now playing out in the market. The massive sell-off in long-term bonds and the ensuing curve steepening is the direct consequence of this stimulus-induced reflationary talk.
The bigger, and perhaps more relevant,… Read More …