ADVERTISEMENT

Trump Trades Show Signs of Cracking on Fiscal-Stimulus Letdown

Trump Trades Show Signs of Cracking on Fiscal-Stimulus Letdown

(Bloomberg) -- Investors have waited two months since Donald Trump’s election victory to get more details on the next U.S. president’s plan to unleash fiscal spending and spur economic growth. 

They’re still waiting. But the trades based on those expectations are losing their luster.

The benchmark 10-year Treasury yield touched the lowest since November and the dollar sank after Trump’s first press conference since the election offered little in the way of new information about his economic-stimulus proposals, disappointing investors. The moves ran counter to trends seen after the Republican captured the White House: U.S. yields reached the highest since 2014 in December, while the greenback touched a 14-year high this month.

With just over a week until Trump’s inauguration, traders are assessing the sustainability of some of the most popular wagers on Wall Street since his victory, including for a stronger dollar and higher U.S. yields. The reaction to his Wednesday appearance extends a week’s worth of moves that have pushed back on the prevailing expectations.

“The market didn’t get what it wanted –- details on stimulus to be provided,” said Bipan Rai, senior foreign-exchange and macro strategist at Canadian Imperial Bank of Commerce. “For now, today’s pre-Trump trades are being unwound.”

Trump Trades Show Signs of Cracking on Fiscal-Stimulus Letdown

The benchmark 10-year Treasury yield fell as much as five basis points to 2.33 percent, touching the lowest since Nov. 30, before ending little changed amid $20 billion of investment-grade corporate issuance, Bloomberg Bond Trader data show. The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, sank 0.2 percent after earlier increasing as much as 0.8 percent.

Stocks ended higher on the day, after reaching session lows shortly after the 90-minute press conference ended without any elaboration on Trump’s plans for infrastructure spending, bank deregulation or trade policies.

“The dollar reversed course shortly after the Trump news conference, which had very little substance regarding the economy and policy,” said Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California. Trang’s bank is the fourth-most accurate currency forecaster, according to Bloomberg’s fourth-quarter rankings.

Though the dollar pared losses, Mexico’s peso set a record low, weakening past 22 per dollar for the first time.

Trump Trades Show Signs of Cracking on Fiscal-Stimulus Letdown

Trump hasn’t softened his stance on Mexico, which should continue putting pressure on the most-traded currency in developing nations, said Win Thin, head of emerging-market currency strategy at Brown Brothers Harriman & Co. in New York.

Apart from the border wall, Trump’s pledges include cutting taxes, scaling back regulations and spending about $1 trillion on infrastructure over a decade. The prospect of those moves spurring faster growth has led bond managers from Bill Gross to Jeffrey Gundlach to eye the end to the three-decade bull market as yields rise from record lows set last year.

Trump Trades Show Signs of Cracking on Fiscal-Stimulus Letdown

For now, the bulls are fighting back. Wednesday’s 10-year Treasury note sale drew a lower-than-expected yield of 2.342 percent, with a bid-to-cover ratio of 2.58. Indirect bidders, a class that includes foreign central banks and mutual funds, bought 70.5 percent, the highest share since August, while direct bidders, non-primary-dealer investors that place bids with the Treasury, purchased 8.7 percent, the most since May.

“We were looking for specific details on tax reforms and other pro-growth ideas that people have been pricing in since the election,” said Priya Misra, head of global rate strategy at TD Securities. “The big Trump trade is on pause, stuck at this ‘show-me-the proof’ type of level.”

--With assistance from Edward Bolingbroke Jeremy Herron Lananh Nguyen and Andrea Wong To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net. To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Mark Tannenbaum, Dave Liedtka