The 90-day tariff pause announced April 9 by the White House, notwithstanding that day’s relief rally in risk assets, leaves unchanged an investment horizon clouded by policy uncertainties originating from the U.S. It is probable that uncertainties over the Trump administration’s trade policy, policy reactions of foreign governments and the concerning fiscal state of the U.S. Treasury will continue to beset markets and macroeconomic outlooks in the months and quarters ahead.
On the tariff front, aside from the unresolved outcome of the largely paused U.S. reciprocal tariffs, remains the question of sectoral tariffs. The administration has telegraphed tariffs targeting such products as pharmaceuticals, lumber and semiconductors. Overhanging uncertainty on tariffs will complicate business decision-making with respect to strategic issues such as where to maintain or relocate production facilities; cyclical issues such as the management of payrolls and layoffs; and capex, which involves both strategic planning and cyclical outlooks.
In addition, the administration has yet to articulate clear guidance regarding the objectives of its tariffs, e.g., revenue-generation? repatriation of manufacturing and jobs to the U.S.? re-ordering of global trade? national security? The answer is probably all of the above, and no doubt more, but we need to know the mix of these objectives as they apply to which tariffs to form a view on their durability and thus their drag on growth.
One silver lining in this cloud of policy uncertainty is Treasury Secretary, Scott Bessent, probably the most experienced Cabinet member in terms of both real-world involvement in global capital markets and academic economic study. He appears to have emerged as prominent figure in managing administration trade policies with an eye to the financial markets. Mr. Bessent’s cool-headed and in Mr. Campbell’s view, accurate explanation of unwinding of levered hedge fund trades as the cause of the April 8 Treasury route, seem to indicate the Treasury secretary remains plugged in to global markets and a key public voice of the administration. The fact that the Treasury secretary was the official who spoke immediately following the announcement of a 90-day pause of reciprocal tariffs suggests that he will have an influential role in the future of tariff and trade policy.
Broadly speaking, with respect to DoubleLine’s active fixed income management, the investment team has been defensively moving portfolio up in credit quality and has managed duration based on our anticipation of a steepening of the Treasury curve and our doubts about longer-term Treasuries remaining an effective safe haven given the deficit and debt trajectories of the federal government. That portfolio construction has worked well, including through the market volatility witnessed in the wake of the Trump administration’s April 2 reciprocal tariff announcement and the April 9 pause announcement.
While DoubleLine remains vigilant for mispricing opportunities and new information from bouts of unusual market volatility, we are investors focused on risk management and return over the medium and long terms. For the time being, we believe our current portfolio positioning remains prudent for this period of profound global and domestic change.
By Bill Campbell, portfolio manager, DoubleLine Global Bond Strategy at DoubleLine Capital
