Trump's Policies Spark Inflation Fears in Bond Market, Top Money Managers Warn

The election of Donald Trump as the next U.S. president has sparked concerns among top money managers about the potential impact of his policies on inflation and the bond market. In an interview with Reuters, Sara Devereux, the global head of fixed income at Vanguard, the world's second-largest asset manager, expressed her concerns about the potential for inflation to stall and core measures of price pressures to remain above the Federal Reserve's 2% target for most of 2025.

Trump's proposed policies, including immigration and trade restrictions, could complicate the picture further. Devereux warned that the uncertainty created by the incoming administration could lead to a broader range of potential outcomes for growth, inflation, and monetary policy, both domestically and abroad. Libby Cantrill, PIMCO's head of public policy, and Allison Boxer, an economist at the bond-focused investment firm, echoed these concerns, noting that a scenario where tariffs increase and budget deficits widen due to expected tax cuts could lead to a deceleration in growth and a rise in inflation.



The concerns about inflation and growth have been reflected in the bond market, with U.S. government bond yields surging over the past few months. Benchmark 10-year yields declined marginally after Trump's inauguration but remained about 100 basis points higher from September, when the Fed started easing rates. BlackRock, the world's largest asset manager, expects yields to keep rising due to a combination of higher inflation and rising government debt levels, warning that this combination represents a fragile equilibrium supporting investor demand for long-term bonds.



The rise in bond yields can have several consequences, including higher borrowing costs for the government, slower economic growth, and a sell-off in bond markets. Higher bond yields can also lead to a sell-off in stock markets, as investors demand higher returns to compensate for the increased risk of lending to a government with a larger deficit. This could potentially slow economic growth and lead to a sell-off in stock markets.

In conclusion, the election of Donald Trump as the next U.S. president has sparked concerns among top money managers about the potential impact of his policies on inflation and the bond market. The concerns about inflation and growth have been reflected in the bond market, with U.S. government bond yields surging over the past few months. The rise in bond yields can have several consequences, including higher borrowing costs for the government, slower economic growth, and a sell-off in bond markets. Investors should closely monitor the developments in the bond market and the potential impact of Trump's policies on inflation and growth to manage their portfolios effectively.