Pro Perspectives 7/1/24





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July 01, 2024

Last week we talked about the potential for pain in sovereign bond markets if the government policy pendulum swings, from the globally coordinated climate agenda, to a more nationalist agenda (under leadership change) — given that trillions of dollars of deficit-funded investment in the climate agenda could be abandoned.
After Thursday night's U.S. Presidential debate, the bond market did indeed react.
The U.S. ten-year yield is 20 basis points higher than it was pre-debate.  
In France, the elections have gone as anticipated, in favor of the nationalist party (Le Pen).  Yields across Europe were up.
As for the U.S., the narrative behind rising yields is that both candidates are fiscally profligate — both will lead to higher deficits.  And if anything, they say Trump policies will be more inflationary.
But as we've discussed, the result of a policy swing, from the globalist agenda to a more nationalist agenda (in both the U.S. and France) would simply mean that the massive deficits and record indebtedness pursued to fund a radical transformation agenda (in both countries) would be abandoned.  For the funding that can't be clawed back or redirected, it would be returnless investment.  
And that, my guess, would be penalized through higher bond yields — until the market gains confidence in a turnaround plan.