Trump risk premium is forming - Brooks

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Markets are beginning to price in a “Trump risk premium” as policy uncertainty and geopolitical tensions rise, according to economist Robin Brooks.

Brooks, former chief FX strategist at Goldman Sachs, said recent moves in Treasury yields [https://robinjbrooks.substack.com/p/do-markets-price-a-trump-risk-premium] suggest investors are starting to price in political risk tied to President Donald Trump’s policy approach, especially around trade, fiscal expansion, and geopolitical tensions.

Brooks pointed to a divergence between short- and long-term yields (SHY [https://seekingalpha.com/symbol/SHY]) (TBT [https://seekingalpha.com/symbol/TBT]) (TLT [https://seekingalpha.com/symbol/TLT]), with the back end of the curve rising more sharply. That pattern indicates markets are demanding additional compensation for holding longer-dated debt, reflecting uncertainty over inflation, deficits, and policy direction.

The move comes as investors grapple with the potential for more aggressive tariffs, higher government spending, and a less predictable geopolitical backdrop. Those factors could push up long-term inflation expectations and increase Treasury supply, both of which weigh on longer-duration bonds.

Brooks argues that while markets have historically been slow to price political risk, the current environment may be different given the scale of potential policy shifts and their impact on global trade and capital flows.

The development suggests that even without immediate changes from the Federal Reserve, political dynamics are beginning to influence financial conditions, particularly in rates markets.

DEAR READERS: We recognize that politics often intersects with the financial news of the day, so we invite you to click here [https://seekingalpha.com/article/4879968-politics-and-the-markets-040526] to join the separate political discussion.

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