(Bloomberg) — Nouriel Roubini is bracing for a world in which long-term U.S. bond yields will move higher as Donald Trump’s policy agenda — including his support for looser monetary policy and higher rates — threatens to undermine price stability.
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The economist, who heads Roubini Macro Associates, is positioning for curve steepening, a popular trade in government bonds that widens the gap between long-term and short-term rates. Called the “Trump trade” by some, the strategy will benefit from rate cuts.
“All the inflation shocks that had spread earlier implied that long bond yields will be higher, both in nominal and real terms,” Roubini said on Bloomberg’s ETF IQ on Wednesday. “That’s why you need an alternative – an alternative that combines things that do well when inflation is higher.”
Roubini, who built his reputation on correctly warning of disaster ahead of the 2008 financial crisis, expects traditional port trades, such as the popular 60/40 portfolio and long-dated U.S. Treasuries, to underperform in an inflationary environment , a climate that he believes will continue to exist. worsen if Trump’s tariffs and immigration plans become reality.
“In a world where inflation is gradually moving higher, you lose on the stock part of your portfolio and you also lose on the bond part of your portfolio,” he said.
Roubini’s newly created Atlas America Fund (ticker USAF) sees shorter-dated Treasury ETFs as its largest constituents. Other investments include exchange-traded funds that track gold funds, climate-resilient real estate investment trusts, municipal securities and corporate bonds.
USAF is Roubini’s first ETF launched through Atlas Capital Team, a fintech company he co-founded to help develop investment strategies that protect against risky scenarios, including runaway inflation, climate change and civil unrest.
“In a world where average inflation might be 5% instead of 2%, bond yields could be closer to 7% to 8% instead of the current 4% plus,” Roubini said. This subjects government bonds, traditionally safe assets, ‘to enormous price risks’.
Roubini, who called Bitcoin the “mother of all bubbles,” continues to diverge from the world’s largest cryptocurrency, advocating its promotion as an alternative store of value in a world of heightened inflation risk.
“Bitcoin is very volatile,” he said. “If you want wealth preservation instead of high volatility, you want to stay away from these types of assets.”
–With help from Scarlet Fu and Eric Balchunas.
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