Trump’s ‘unpredictable’ policies to fuel shift from US, Pimco says

The Event
Pimco warns that Trump’s “unpredictable” policy approach is accelerating a potential reallocation away from US assets, as investor unease builds around reported attacks on the Federal Reserve’s independence and the broader policy mix.

Why It Matters
This matters because perceived encroachment on Fed autonomy raises the US term premium and political risk embedded in Treasury pricing, lifting the hurdle rate for US risk assets while making non-US duration and FX exposure comparatively more attractive for global allocators.

Cross-Asset Implications
In rates, the immediate macro channel is higher compensation for holding long-dated US duration: that typically steepens the curve as the back end reprices, pressuring and tightening financial conditions via higher real yields. In FX, a credibility shock tends to express as wider US policy risk premia and diversification demand, weighing at the margin even if growth differentials remain supportive in the near term. In defensive hedges, rising institutional demand for non-sovereign stores of value supports , particularly if the market reads Fed-politics risk as a path to looser de facto policy and higher medium-term inflation tails. For equities, the key is factor rotation: sensitivity increases if long-end yields reprice, shifting flows away from growth leadership and into cash-flow defensives; the index-level proxy is pressure on broad beta via , while global ex-US equity allocations rise as relative political risk is repriced. Credit is a secondary transmission: if term premium rises and refinancing costs reset higher, spreads tend to widen mechanically, challenging even without an immediate deterioration in default fundamentals.

Historical Parallel
The setup echoes 2018, when episodic pressure on Fed credibility and tariff-policy volatility increased cross-asset correlation and pushed investors toward explicit hedges rather than pure risk exposure.

Institutional Take
Treat this as an allocation regime shift rather than a one-off headline. The market’s base case is no formal change to the Fed’s mandate, but repeated attacks function like a volatility tax: they harden the floor under term premium and reduce the reliability of “US exceptionalism” as a low-friction default. Portfolio construction adapts in three steps: (1) reduce concentrated US duration exposure and barbell with inflation hedges; (2) increase FX-hedged non-US duration where policy credibility is more stable; (3) keep equity exposure but rotate away from the most rate-sensitive growth segments. Net: higher policy-noise risk keeps US assets tradable, but less anchorable at tight risk premia.

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