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TIME TO TAKE PROFIT ON SOME TRUMP TRADES, CITI SAY

The past couple of weeks have been all about 'Trump Trades' as investors bought the dollar, and sold the long end of the U.S. Treasuries curve on bets a second Donald Trump presidency would lead to higher inflation over the medium term.

But Citi suggest in a Friday note suggest it is now time to take profit on some of these, and there are a few reasons in the mix.

Firstly, there has been a big shift in positioning. A large dollar net short before the stronger-than-expected September nonfarm payrolls has swung sharply to a net long. Typically, a net short position is seen as a potential positive, as it leaves more scope for investors to buy than sell, and vice versa.

Then, Citi say: "Despite investors concluding that Trump would be the victor, the polling bias is only moderately in his favour", and lastly they observe that past emerging market elections have seen much of the market activity take place before the result rather than after.

As a result, Citi recommend taking profit on their long 5y inflation breakeven trades and bearish EUR/USD "seagull" trades - a position that involves a combination of three types of option with a net premium of zero -, while leaving on "trades that we think would benefit from a Trump victory, but are not as directionally exposed to the result or are structured in options space" for example, long December 2025 Sonias vs December 2025 SOFRs.

(Alun John)

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