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Informist, Thursday, Nov. 7, 2024

By Cassandra Carvalho

MUMBAI – Higher bond yields in the US may be a quintessence of the Trump trade, but Mahendra Jajoo, chief investment officer – fixed income at Mirae Asset Investment Managers believes that markets are overestimating the impact of Donald Trump's presidency on US Treasury yields.

Jajoo said that there would be dramatic effects of the Trump administration on bond markets, but they were likely to be more on the positive side, unlike market players' negative perspective on it. Jajoo expects the yield on the 10-year benchmark US Treasury note to fall to 3.50% in the next six to twelve months.

"I think people are becoming too concerned about the Trump administration's tariffs and so on, because none of that is going to happen overnight," Jajoo told Informist on the sidelines of the Business Standard BFSI Summit. "So when we are talking of 3.50% (on the 10-year US yield in the next six-12 months), they’re close to 4.40% now, which means market is over-discounting." Contrary to the market view, Jajoo said that a Trump administration would not have an outsized impact on the US fiscal deficit.

Jajoo pointed out that 2025 would be a year of rate cuts in the US, given the Federal Open Market Committee’s dot plot projection of 3.25-3.50% fed funds rate by the end of 2025 as against the current level of 4.75-5.00%. While this would see US yields falling, additional factors such as low demand for US government debt from other central banks could constrain the downward trajectory of yields. The FOMC is expected to cut interest rates by 25 basis points at its meeting ending Thursday, after a jumbo 50 bps cut in September.

With respect to monetary policy in India, Jajoo said he expected a rate cut by the Monetary Policy Committee at its December meeting. Jajoo said Trump's electoral promise of ending geopolitical tensions strengthens the case for rate cuts in India by eliminating a key uncertainty that the MPC has been facing.

Jajoo expects foreign investment to continue trickling into debt, although the bulk of the inflows related to India's inclusion in the JP Morgan index have already hit the market. He sees the yield on the benchmark, 10-year 7.10%, 2034 gilt holding on near its current level of 6.80% by the end of the month. End

Edited by Deepshikha Bhardwaj 

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