"Doctor Doom": The bond market will punish the "Trump policies"

Shorting U.S. Treasuries is one of the hottest "Trump trades." "Dr. Doom" Nouriel Roubini stated that the surge in U.S. Treasury yields could, in turn, hinder the implementation of Trump’s policies. On Tuesday, renowned economist Nouriel Roubini stated in a media interview, "If Trump returns to the White House and continues to implement his massive spending plans, we will see the return of the 'bond vigilantes,' which may suppress 'radical' economic policies." The term "bond vigilantes" was first introduced by Wall Street veteran analyst Ed Yardeni in the 1980s, referring to investors who successfully force governments and central banks to change policies by driving down bond prices and raising bond yields. Roubini stated: "Trump cares about market discipline. If bond yields rise and the stock market adjusts, the bond vigilantes will say your policies are unsustainable—then economic advisors will warn him not to adopt radical populist economic policies, but to be more moderate." Goldman Sachs stated in its latest report that the continued rise in bond yields could lead to some "reflation setbacks" for stocks, meaning a more negative correlation between stock and bond yields: As long as the rise in bond yields is driven by better growth, stocks should be able to absorb higher bond yields. That said, if real yields start to rise (compared to real GDP growth expectations) or if the rise in bond yields is too rapid, the increasing bond yields could ultimately become a constraint on stocks. George Catrambone, head of fixed income at DWS Americas, also stated that the bond market may still be "influenced by election results," but investors "should wait for the final policy announcements." Before the U.S. election, Roubini warned that the combination of Trump’s trade, monetary, fiscal, immigration, and foreign policies poses a much greater risk of stagflation than a Harris victory. He pointed out that Trump’s policy plans—including imposing higher tariffs, devaluing the dollar, and taking a hard stance on illegal immigration—could slow the economy while stimulating rising inflation. The strategist team at LPL Financial wrote in a report on Monday: "Better economic data, a potentially overly dovish Federal Reserve, and more policy details from the Trump administration could push U.S. Treasury yields higher... Only negative economic surprises would lead to a significant decline in yields from current levels." The sharp decline in U.S. Treasuries and soaring yields could also impact the Federal Reserve's rate cuts. Last week, Ed Yardeni warned that the "bond vigilantes" are dominating the market, and they may push the 10-year U.S. Treasury yield up to 5%, thereby affecting the Fed's subsequent rate-cutting actions. On Wall Street, uncertainty is forcing strategists to maintain their neutral stance post-election. Strategists from Citigroup, JP Morgan, and Morgan Stanley all hold a neutral view on bond durations following the election and the Fed's latest decisions