How a Trump Presidency will Impact Treasury Investment Portfolios

Abstract

Policy, geopolitical, and idiosyncratic risks are real under the new administration. It is too soon to tell if the next four years will be friendly to cash investors. The economic drag from trade barriers and immigration control may offset some benefits from a federal stimulus and a pro-business Republican agenda.
A potentially bifurcated outcome from the new president makes it difficult for portfolio decisions, but broad diversification and interest rate neutral strategies offer some defense against uncertainties.

Introduction

The upset win by Donald J. Trump as the next president of the United States defied predictions of market disruptions. Risk assets of almost any kind staged strong rallies in the days since the populist Republican candidate’s victory on November 8th. Interest rates across the yield curve, on the other hand, rose in rapid succession on expectations of a higher federal deficit, higher economic growth, and higher inflation.
At this moment, little is known about the details of the new President’s policies and priorities. In a two-and-half-minute YouTube video (view here), President-elect Trump outlined his “First 100-Day Plan”, which includes the withdrawal from the Trans-Pacific Partnership (TPP), removal of policy restrictions on shale oil, increased “clean coal” and other energy production, a plan to secure vital infrastructure from cyber-attacks, and investigations into visa program abuses. Many of his campaign promises that may negatively impact the economy and financial markets are conspicuously missing.
Treasury management professionals are keenly focused on the safety, liquidity and yield objectives of their cash investments. While the unconventional Trump presidency will no doubt cause many changes in society and international relations, our focus is on short-term debt markets and the economic environment for liquid investments. We need to sort through a number of questions and issues to understand how a Trump presidency may impact our investment strategies in the long run.
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