Bond activity after the American election
From ESCP Finance Society, a comprehensive analysys of the Bond activity after Trumps’ election, by Ghali Bensouda and Giulia Maccelli
Trump’s victory in November led up to sudden changes in financial markets. Firstly, the fiscal spending he promised has led to higher commodities price as the US government will ask for more commodities to build more facilities. The future tax reduction under Trump’s administration results in repatriation of dollars that strengthens the US currency. The trade tariffs that Trump wants to implement with US commercial partners will have a negative impact on exports of some emerging countries including China and Mexico. Above all, this fiscal stimulus will create inflation that the FED is trying to control by hiking its targeted interest rate from 0.5% to 0.75% knowing that higher interest rates causes lower bond prices. Since the US election in November roughly $3trn have moved from bond markets to stock markets.
Two of the most important factors hurting bond prices right now are then the fact that inflation…
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