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Trump trades are upended as Treasuries returns beat US equities

general :: 2025-03-04 :: source - bloomberg

By Ruth Carson

(Bloomberg) — US Treasuries are now outperforming stocks since Donald Trump was elected President, and some strategists say there’s room for those gains to run.


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A Bloomberg gauge of US sovereign debt has returned 2.1% since the Nov. 5 vote, beating a gain of 1.6% from the S&P 500 Index (^GSPC) including reinvested dividends. The haven bid to buy Treasuries became clearer Tuesday as Trump ratcheted up the global trade frictions by imposing new 25% duties on Canada to Mexico, while the prospect of further Federal Reserve easing is giving bonds a further tailwind.

Stocks meanwhile are being sold as the outlook for global growth worsens, and also due to concern market leaders such as Nvidia Corp. (NVDA) are overvalued. Taken together these moves are the opposite of the so-called “Trump trade,” which favors rising equities and higher Treasury yields.

“It’s easy to see the Fed cutting 50, 100, 150 basis points this year, but tough – if not impossible – to see them tightening by the same magnitude,” said Michael Brown, senior research strategist at Pepperstone Group Ltd. in London. “Sprinkle a growth scare on top, and there’s your bull case in a nutshell” for bonds, he said.

Treasury 10-year yields fell to a four-month low of 4.11% Tuesday as investors bet the intensifying trade war will bludgeon global growth. The US economy, long lauded for its outperformance, is showing cracks with factory activity edging closer to stagnation in February — bolstering the appeal of fixed-income assets.

“The ‘US exceptionalism’ narrative – a driver of macro markets for well over a year – faces an increasingly uphill battle, given risks to growth on both sides of the Atlantic,” Morgan Stanley strategists including Matthew Hornbach wrote in a note. “We think US Treasuries will benefit the most from a rethink of the narrative.”

Sliding Yields

Yields have dropped across the US Treasury curve in the past month as investors have tilted toward viewing tariffs as a negative for US growth. There’s now added urgency to that view given Trump plowed ahead with new tariffs starting Tuesday just as the world’s biggest economy shows signs of weakening.

Swaps traders are now pricing in about three quarter-point rate cuts from the Fed by year-end, compared with fewer than two just two weeks ago. Hedge funds are also becoming less bearish on Treasuries, having trimmed short positions for a second week, according to the latest Commodity Futures Trading Commission data.

Some question if the rally will persist. The gains in bonds may be linked to hedging strategies, rather than a strong conviction bet, said Billy Leung, an investment strategist at Global ETFs in Sydney.

The recent theme of hedging against further yield declines resumed Monday, via a roughly $27 million trade targeting a 10-year yield drop to 4.1% and below ahead of the April 25 expiry.

Whether bond yields continue to decline may depend on US payrolls data for February to be released Friday.

“We need more data to see whether this is just a soft patch or something more pernicious,” said James Athey, a portfolio manager at Marlborough Investment Management. “It’s hard to argue that Treasuries are cheap, unless you know for sure that data is going to be weak.”

Others see bonds extending gains amid the escalating trade frictions and uncertainty about growth.

“The concern is that tariffs are coming into play just as cracks are showing in US growth,” said Prashant Newnaha, senior rates strategist at TD Securities in Singapore. “This is adding fuel to the rally in US rates.”

—With assistance from Matthew Burgess and Masaki Kondo.

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