As investors demand higher compensation for fiscal and political risk, the Treasury yield curve could steepen. President Trump’s criticism of the Fed and attempts to change the voting board composition are eroding investor confidence. Skepticism over the Fed’s independence is affecting long-end yields, despite conditional trust in the central bank.

Bond fund managers warn of a resurgence in inflation and bigger deficits, leading to a steeper yield curve. Gareth Nicholson advises caution and flexibility in trading the dollar and long bonds. Yields are pressured by persistent deficits and heavy bond issuance, with long-term Treasuries affected even as short-end yields factor in more Fed rate cuts.

Front-end yields are expected to fall amid labor market softness, while the long-end remains anchored. Investors are not adequately compensated for inflation and fiscal concerns, with the long end of the Treasury curve most sensitive. Policymakers may repress yields to prevent inflation, prompting investors to shift to stocks and other assets.

As Treasuries lose appeal, bond fund managers turn to private credit. Nicholson highlights opportunities in secondaries, infrastructure, renewables, and logistics-focused real estate. Corporate sector fundamentals remain strong, with spreads appearing tight due to Treasury market dynamics. Preference is on carry over long duration for J.P. Morgan’s Parker.

Read more at Yahoo Finance: Trump pressure on Fed may steepen US yield curve, fund managers say