The recent US presidential debate has heightened the possibility of a Trump re-election, leading investors to consider yield curve steepeners as a profitable investment. According to Morgan Stanley, if Trump were to win, economic growth is expected to slow down while inflation may increase. This shift in market sentiment is largely due to the focus on Trump’s immigration and tariff policies, which are expected to intensify if he wins a second term.
In response to this outlook, bond traders are preparing for a scenario where the yield curve steepens. Last week, the yield discount of 10-year notes over two-year securities saw a significant decrease, the largest since January. This indicates that investors are adjusting their strategies in anticipation of a Trump re-election and the potential economic changes that may follow. Overall, the market sentiment is shifting towards expecting slower growth and higher inflation if Trump wins the upcoming election.