With less than two months until election day, now is a good time to review some of the trades that could work under both possible presidential election scenarios. That includes fixed income ideas.
Investors have flocked to U.S. Treasuries and bond-related exchange traded funds in a world of negative-yielding sovereign debt. However, with U.S. Treasury yields hovering around three-decade lows, government debt looks pricey and fixed-income investors are now exposed to greater risks.
Related: If Rates Rise, Look to These Junk Bond ETFs
With the Federal Reserve, to this point in the year, holding off on raising interest rates and investors consistently displaying an affinity for less risky assets, longer-dated bonds are among this year’s best-performing asset classes.
That scenario has been a boon for exchange traded funds such as the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT). There are some obvious fundamental factors that bode well for U.S. debt ETFs, namely a slew of negative interest rate policies throughout the developed world, which make the low yields on U.S. bonds look all the more attractive.
However, some market observers expect Treasury yields will rise if Republican nominee Donald Trump beats Democratic rival Hillary Clinton in November. If that theory proves accurate, the real boon could come for the ProShares UltraShort 20+ Year Treasury (NYSEArca: TBT), which tries to reflect the -2x or -200% daily performance of the Barclays U.S. 20+ Year Treasury Bond Index.
“Both the 10-year and 30-year U.S. Treasuries will see yields rise if Trump becomes president, the team writes. They expect the 10-year yield to hit 1.75 to 2.00 percent if he’s elected, and the 30-year to touch 2.60 to 2.75 percent,” Bloomberg reports, citing Citigroup.