Global Fixed Income Strategy - January 2025
Trump delivers on his campaign promises - what does it mean for macro and markets?
President Trump began his second term as president with a bang – a record 26 executive orders on day one, with many pronouncements during his first week. None of the executive orders were unexpected. They were all laid out in the campaign, or as part of the disavowed and reclaimed Project 2025.
While a number of the executive orders are more political in nature – e.g. pardoning and commuting the January 6th sentences and pulling out of the Paris Climate Accord – there are several that, while also political, could have an outsized impact on the economy and markets. The two we are watching most closely are the orders around tariffs and immigration.
Tariffs
On tariffs, while there were a number of threats to impose 25% tariffs on goods from Canada and Mexico and an initial 10% tariff on goods from China, all decisions were delayed until February 1. This has led many to believe that tariffs are more likely to be used as a negotiating lever than actually be implemented. We believe it is too early to make that determination. Our sources tell us that the delay until February 1 was driven by the desire to wait for the confirmation of Commerce Secretary designee Howard Lutnick so he could be involved in any follow-up conversations with various countries, and the fact that there are still ongoing debates among officials about how to use tariffs and how far to push the tariff levels for each country.
Immigration
On immigration, as expected, Trump declared a national emergency at the border and is setting up the infrastructure to increase deportations. We are watching how far he pushes this effort and how it will impact key sectors like agriculture, hospitality and construction. There are currently 1.4 million people who have already been through the court system and are eligible for deportation, and there are another 3.7 million in process.1 Just dealing with those people would be a major development.
Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Fixed-income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
Non-investment grade bonds, also called high yield bonds or junk bonds, pay higher yields but also carry more risk and a lower credit rating than an investment grade bond.
Municipal securities are subject to the risk that legislative or economic conditions could affect an issuer’s ability to make payments of principal and/ or interest.
The risks of investing in securities of foreign issuers, including emerging market issuers, can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.
The performance of an investment concentrated in issuers of a certain region or country is expected to be closely tied to conditions within that region and to be more volatile than more geographically diversified investments.
Footnotes
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1
Source: US Immigration and Customs Enforcement, US Department of Homeland Security, US Customs and Border Protection, Migration Policy Institute. Data as of Jan. 24, 2025.
