How bond investors could benefit from Trump's revenue campaign
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Illustration: Annelise Capossela/Axios
The Trump administration continues to find new forms of revenue, the latest being a 15% fee on chip sales to China for Nvidia and AMD. The new income could have big implications for the bond market.
Why it matters: The billions of dollars in revenue from tariffs and from companies paying the administration to do business could allow for less Treasury issuance, which would be bullish for the longer end of the yield curve.
What they're saying: The Nvidia situation is "another example of the government looking for any way to generate revenues to almost decrease bond yields," Brij Khurana, portfolio manager at Wellington Management, tells Axios.
- This is why Khurana is bullish on the long-end of the yield curve, a contrarian stance as most fixed-income advisors are focused on the belly of the curve.
- He feels the administration will issue fewer long-end bonds and more short-term bonds to meet demand, which could push yields at the back end down.
- Treasuries at the long end are already "cheap," he says.
Zoom in: If the administration is getting revenue from a slew of additional sources, then the Treasury could afford to sell less debt.
- That lowers the supply of bonds, which could push up prices. Yields would fall, given the inverse relationship between bond yields and prices.
The intrigue: It's not just about the additional revenue from two giant chip companies. Khurana says this is a pattern of revenue generation that could come from several policy initiatives from the administration, including:
- Tariffs.
- Discussions about revaluing gold.
- IPOs for Fannie Mae and Freddie Mac.
- Company payments directly to the government to do business overseas.
Yes, but: The national debt has swollen to more than $37 trillion, and every second it hits a new record.
- The current revenue from the administration's policies barely scratches the surface of the $5 trillion in additional spending accounted for by the "one big beautiful bill" over the next decade, according to the Tax Foundation.
- Tariff revenue currently sits at under $30 billion a month, and the administration is projecting $300 billion in annual tariff revenue.
- That may not be enough to offset deficit concerns and therefore lower yields on the long-end of the curve.
Be smart: It is confounding to see the business community accepting that the "cost of doing business" under the administration involves payments directly to the government.
- Foreign investors could see this as one more reason to get out of dollar-denominated assets.
- We've already seen decreased foreign demand for U.S. Treasuries pushing yields higher, against the administration's wishes.
The bottom line: "The Trump administration certainly wants to spend where they want to spend, but they are hoping that it's going to be productive and growth stimulative, and they're looking for offsets wherever they can," Khurana says.
- Those offsets could be bullish for long duration bond investors.
