(Bloomberg) — Nouriel Roubini is preparing for a world in which yields on long-dated US bonds will edge higher as Donald Trump’s policy agenda — including his support for looser monetary policy and higher tariffs — risks eroding price stability.
The economist, who runs Roubini Macro Associates, is positioning for a curve steepener, a popular Treasuries trade where the gap between long- and short-dated yields widens. Dubbed the “Trump trade” by some, the strategy stands to benefit from interest-rate cuts.
“All the inflationary shocks that had spread before implied that the long bond yields are going to be higher, both in nominal terms and in real terms,” Roubini said on Bloomberg’s ETF IQ Wednesday. “Therefore, you need an alternative — an alternative that combines things that do well when inflation is higher.”
Roubini, who built his reputation by correctly warning of a disaster ahead of the 2008 financial crisis, expects traditional haven trades, like the popular 60/40 portfolio and long-duration US Treasuries, will underperform in an inflationary environment, one that he predicts will worsen if Trump’s tariff and immigration plans come to fruition.
“In a world in which gradually inflation goes higher, you lose on the equity part of your portfolio and you lose also on the bond portion of your portfolio,” he said.
Roubini’s newly minted Atlas America Fund (ticker USAF) counts shorter-term Treasury ETFs as its biggest constituents. Other holdings include exchange-traded funds tracking gold trusts, climate-change resilient real estate investment trusts, municipal securities and corporate bonds.
USAF is Roubini’s first ETF launched through Atlas Capital Team, a fintech company that he co-founded to help develop investing strategies that protect against high-risk scenarios including out-of-control inflation, climate change and civil unrest.
“In a world in which average inflation might be 5% rather than 2%, bond yields may be closer to 7% to 8% rather than the current 4%-plus,” Roubini said. That subjects Treasuries, traditionally safe assets, “to massive price risks.”
Roubini, who famously called Bitcoin “the mother of all bubbles,” is still steering clear from the world’s largest cryptocurrency, which advocates tout as an alternative store of value in a world of elevated inflation risk.
“Bitcoin is highly volatile,” he said. “If you want wealth preservation rather than high volatility, you want to stay away from those types of assets.”
–With assistance from Scarlet Fu and Eric Balchunas.
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