The immediate implication of the surprising election result accelerates trends that pre-dated the outcome. Namely, the anticipated shift towards fiscal policy that can alleviate the heavy burden on monetary policy. That leads to higher rates and a steeper curve as the Fed continues a go-slow approach to normalization to encourage a go-fast economy, where rising inflation expectations account for a greater share of interest rate increases. That keeps TIPS and steepeners as preferred strategies with high-quality carry in investment grade. The potential populism in future policy, however, creates a bit more downside risk to our preference for emerging markets, leading to a more cautious stance for that sector.
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