New York City, NY – As the possibility of a Donald Trump election victory looms, corporate bond investors are making strategic moves in the credit world. The current trend is leaning towards purchasing American high-yield bonds while avoiding inflation-sensitive investments.

Global investors are already adjusting their portfolios to capitalize on a potential Trump win, following an increase in his popularity after an assassination attempt and the Republican National Convention. In recent weeks, US high-yield bond spreads have strengthened compared to their euro counterparts, attracting significant inflows into junk funds worldwide.

According to experts like Al Cattermole, a portfolio manager at Mirabaud Asset Management, the focus is on US high yield as it offers a more domestic-oriented and US economic activity-exposed investment opportunity. Trump’s plans to lower the corporate tax rate and potentially impose high tariffs on imports could benefit US companies, particularly those with a focus on domestic revenues.

The appeal of US junk bonds lies in the fact that many top-rated borrowers rely mainly on domestic revenues, especially in sectors like industrial manufacturing. This shift towards domestic-focused companies could be advantageous if Trump’s pro-business policies come into effect.

While some fund managers are eyeing the yield curve shape amid tight corporate bond spreads, others are considering shorter duration bonds and steepener trades. The expectation of a steeper yield curve, coupled with potential interest rate cuts by the Federal Reserve to counter inflationary pressures from Trump’s policies, is influencing investment decisions.

However, not all money managers are convinced about a full Trump portfolio just yet, citing uncertainties around his potential win and policy actions. The market reactions to higher interest rates, inflation, and tariffs in a Trump administration could create volatility, with implications for various asset classes like European high yield bonds.

As the credit world’s “Trump trade” gains momentum, investors are carefully evaluating their portfolios to navigate potential shifts in economic policy and market dynamics. The outcome of the upcoming election will undoubtedly impact investment strategies, with a focus on adapting to the changing landscape to maximize returns while managing risks effectively.