Rates spent months about .5% above pre-election levels after Trump won the presidency, and are now falling on bond buying as Trump wakes up and/or listens to his economic team. Matt Graham over at Mortgage News Daily has the rate game down cold and said this about Trump economic policy shifts coming into the weekend:
In this world, there’s a big-picture fundamental justification for the decades-long bull market in bonds to remain intact. From 2008-2013, it was the US financial crisis and Fed QE response. That overlapped with the European systemic crisis and QE response from 2010-present.
With the European Central Bank set to end QE (probably?) this year and with the Trump administration ostensibly connoting increased growth and inflation prospects, the decades-long bull market in bonds was called into question in a big way in the end of 2016.
The only major counterpoints to that idea were the possibilities that Trump would have a hard time getting his campaign goals/promises to translate into policy, and that Trump’s leadership style might create geopolitical risks that ended up helping bonds. Some optimists also figured Trump the financier would speak out (and “act out”) in favor of low rates as an economic lubricant.
We’re only a few months into the Trump presidency and all those wild cards are effectively in play. On the last topic, Trump didn’t necessarily speak out in favor of low rates, but he did say the dollar is too strong yesterday. That’s a big deal, because it implies policies (or Fed appointments) that will be bond-friendly (weakening the dollar implies bond-friendly accommodation).
On those bond/rate friendly Fed appointments, the WSJ reports Trump also said this this when asked about Fed chair Janet Yellen this week: “I do like a low-interest rate policy, I must be honest with you.”
He also said “I like her, I respect her” after meeting with Yellen in the Oval office, and when asked if she was “toast” when her term ends in February 2018, Trump said “No, not toast.”
This is critical insight into a possible new rate policy view for Trump because in addition to deciding Yellen’s fate next February, he also may have four additional Fed governor appointments in the next 15 months. The chatter just a few months ago was that he’d stack the Fed with leaders who’d push for higher rates, and suddenly Yellen has a chance continue leading the direction for U.S. rates.
Will rates rise again? Or will the Debtor In Chief champion lower rate policy that gave him his wealth and power?
You can’t make a reality show cliffhanger better, especially when the main character is so unpredictable.
At least for now consumers win as the post-election rate spike is reversing.