US interest rates could rise 1 per cent over the next 18 months if president-elect Donald Trump implements his promised fiscal package, according to Kames fixed income head David Roberts.
Government bonds have sold off since Trump’s election win earlier this month.
The Republican president-elect has promised a tax cuts and infrastructure and defence spending worth $5trn.
“With full employment and some inflation pressure we think there could be another 1 per cent on US interest rates over the next 18 months,” Roberts says.
“If Yellen believes Trump will spend $5trn on policies that make a difference, then bonds have further to sell off.”
Roberts says credit would perform better than sovereign debt in such a scenario, adding that the team’s fixed income portfolios. “Soon enough we might like the beta of our asset class.”
Roberts adds: “However there is a growing view that credit may be caught between more attractive risk-free assets and equities which should benefit from growth and inflation. The technicals could get nasty.”