Amid heightened uncertainty, bond yields rose the first time that Donald Trump was set to step into the White House. This time, markets are reacting similarly, but economists at National Bank Financial Inc. (NBF) remain optimistic that Trump’s bark will once again prove much worse than his bite.
In a research note, NBF recalled the lead-up to Trump’s first term back in 2017, when “similar uncertainty brought about a similar increase in the term premium as… inauguration day approached.
“Scan the headlines eight years ago and you could easily mistake them for something published in recent weeks,” it said.
Yet, many of worries that arose in 2017 didn’t actually materialize, and bond markets soon breathed a sigh of relief, it noted.
“Ultimately, the term premium steadily moderated after the first few months of 2017 as uncertainty resolved and markets tempered expectations on the President’s policy action,” it said.
Admittedly, U.S. government finances are in a worse position now than they were back in 2017, and “Trump’s affinity for tariffs appears to have only grown over time,” the report said.
“So yes, there’s a world in which he plunges the deficit further while imposing tariffs on anyone brash enough to run a trade surplus against the U.S. But there’s at least some empirical evidence to suggest he won’t,” it said.
At this point, NBF remains, “very cautiously optimistic that cooler heads will (mostly) prevail,” it said — which should allow rates to ease, even if the U.S. Federal Reserve remains cautious about monetary policy.