Rate-Cut-Demanding Trump Risks A Vicious Backlash From The Bond Vigilantes

Authored by Dhaval Joshi via BCA Research,

Executive Summary: 

• Euro area and Chinese interest rates must fall much further to prevent monetary policy from becoming ultra-restrictive.

• But Trump’s attempts to force unwarranted rate cuts from the Fed risks a vicious backlash from the bond vigilantes.

• Asset allocators should weight bonds at neutral, at most.

• Bond investors should overweight German bunds, Italian BTPs and Chinese government bonds and underweight US T-bonds and JGBs.

• Equity investors should stay highly vigilant for a meaningful rise in Japan’s real bond yield.

• Go tactically neutral bitcoin if its 65-day complexity hits a trigger-level of 1.21.