UBS Fixed Income-Global Rates Strategy _Rates Map - Trump 2.0 vs Trump 1.0 … ...-119192810

ab5 December 2025Global ResearchGlobal Rates StrategyRates Map - Trump 2.0 vs Trump 1.0 … Carry on A point-in-time comparison of Trump 2.0 with Trump 1.0 suggests that carry trades can run further. Fed will respond to repo pressures. Bunds are back on our watch for a potential long. We expect more EUR 10s30s steepening. We are receiving 1y1y Swiss rates into next week's SNB meeting. We are positioned for higher JPY rates in 2026. Trump 2.0 versus Trump 1.0 Unlike Trump 1.0, financial markets have settled on lower nominal and real yields, substantially lower oil prices, and steeper 5s30s since the election of President Trump last year. Not everything was different under Trump 1.0. We have seen a similar depreciation in the broad USD and strong equity gains since the presidential election last year. Interestingly, despite the sharper and faster increase in US tariffs under Trump 2.0 versus Trump 1.0, US 5y5 inflation swaps fell 9 bps. A carry positive outcome so far The point-in-time comparison of Trump 2.0 with Trump 1.0 masks quite a bit of in-between volatility and the decisions and adjustments that investors have often had to make in response to a range of policy announcements. Please see the charts below for more details. Nevertheless, we think that the combination of less volatile US rates, some dollar weakness, and lower oil prices will support carry trades in the near-term, not just in swap spreads but also European Government Bonds and EM fixed income. We have had a long bias on UST throughout most of 2025, and stay long US 10y with a target of 3.5%. UBS economists expect average monthly payroll growth of -3k in Q4 of 2025 and 32k in Q1 of 2026. We stay long 30y US vs SOFR. This 30y spread trade has done a lot but we still expect it to settle below 70 bps.Fed will respond to US repo tightening We are not in September 2019 in terms of US money market turmoil, but we expect the FOMC to respond to ongoing repo pressures with the resumption of monthly bill purchases as the path of least resistance.We are positioned for a smaller gap between 1-m SOFR and Fed Funds rates in January but have stayed away from December trades (so paying Jan '26 SOFR/Fed Funds). There is some disagreement on the balance sheet outlook though. Dallas Fed President Logan said that the Fed will have to resume balance sheet growth to get money market rates closer or slightly below the interest rate on reserve balances. But President Logan does not want the FOMC to take a mechanical approach. This is also a topic on which we expect more discussion within the FOMC, with a decision that may not arrive at the December meeting. Governor Waller, for example, has pointed to 9% GDP as the threshold below which reserves would not be ample. Rethink on Fed reserves takes time but could have impactGovernor Miran said that the optimal level of reserves may drop below current levels, relative to GDP or the size of the banking system, in case of further changes to bankin