Citigroup Takes Profits on Some Trump Trades as Investors Favor Republican Candidate

(Bloomberg) -- Citigroup Inc. says it time to take profits on some trades tied to a potential win by former President Donald Trump in next month’s election.

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Historic data show that much of the swings in asset prices happen ahead of a actual election, so its best to lock-in gains on key wagers even as investors increasingly see Trump as the favorite, the firm said in a note. Trump is running against Vice President Kamala Harris on Nov. 5.

“We have been running long Trump trades for some time,” said Dirk Willer, Citi’s global head of macro research and asset allocation. “Despite investors concluding that Trump would be the victor, the polling bias is only moderately in his favor. We therefore take profits in some of our Trump-biased election trades but leave certain structures on the table.”

One of the bank’s preferred election trades was a bet on bond market measures of US inflation expectations rising over the coming five years. Citi took a long five-year so-called breakeven position and added to it in early October after a stronger-than-expected September US employment report.

The breakeven rate is calculated based on the difference between the yield on inflation-protected securities, or TIPS, and standard Treasuries. It increases when investors are wary about rising inflation. The five-year breakeven rate now hovers at around 2.3%, up from as low as 1.8% earlier this year. Citi pocketed a profit on this trade.

Another winning Trump strategy that the bank exited consisted of positions that profit from a stronger dollar, particularly against the euro. The dollar has gained about 3.5% versus the euro since late September, with the common currency trading at $1.0820 on Friday.

While long positioning in favor of the US dollar has picked up “significantly and Trump odds potentially nearing a peak, we find it prudent to take profits,” Willer wrote. He added that “according to our markets FX quant team, hedge funds have poured into USD longs at a historically high rate.”

After entering the month holding more than $13 billion in bearish wagers on the greenback, non-commercial derivatives traders are now effectively flat, Commodity Futures Trading Commission data for the week ended Oct. 15 compiled by Bloomberg show. Traders now carry a small net short of some $1.4 billion. Updated CFTC data for the week ended on Tuesday will be released later on Friday.

Citi continues to hold several positions that would benefit if Trump is elected on Nov. 5. They include options trades that look for the December 2025 sterling overnight rate to fall faster than similar contracts linked to US money-market rates and others that gain if US banks outperform the overall S&P 500 index.

--With assistance from Carter Johnson.

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