'The Other Yield Curve' Flashes 'Trump Trade' Warning

Authored by Simon White, Bloomberg macro strategist,

The yield curve based on inflation expectations has flattened significantly and is now more inverted than it ever has been - and it will remain under pressure in the event of a Trump presidential victory. This “expectations curve” shows that consumers are anticipating much tighter financial conditions than inferred by the market via the nominal yield curve, presenting a risk to consumption, broader economic growth and equity valuations and returns.

The so-called Trump trade received a boost this week after the attempt on the likely presidential candidate’s life. That has drawn extra attention to the steepening yield curve, but the easing in financial conditions it implies is in stark contrast to a lesser-followed curve.