Trump's approval rating is sending traders signals on a $14 trillion market

Donald Trump point pointingPool/Getty ImagesTrump’s approval rating is pointing traders in the future direction of US Treasury yields.

To get an idea of where the $US14 trillion Treasury market is headed, look no further than President Donald Trump‘s approval rating.

Treasury yields have been closely tracking the gauge of presidential popularity all year, according to Goldman Sachs.

As a bond rally sent yields declining over the first 8 1/2 months of the year, Trump’s approval took a beating while he failed to make progress on the policy front, among many other self-created headwinds.

Now, amid signs of progress — including Wednesday’s newly-unveiled tax plan — the public is getting slightly more comfortable with what the president is doing.

Climbing Treasury yields are just one aspect of the so-called “Trump trade” — otherwise known as the “reflation trade” — which is the moniker used to describe areas of the market directly affected by political policy. The trade has rebounded recently amid speculation around Trump’s tax plan, and continued higher on Wednesday after it was released.

“President Trump’s approval ratings have recently been improving alongside the sell-off in rates, a relationship that appears to be at least partly causal,” Goldman analyst Michael Cahill wrote in a client note. “While the plan revealed few details that were not already expected, its release appeared to breathe life into hopes that Congress may be able to compromise on a fiscally expansionary tax bill.”

But Trump’s policy progress isn’t the only element driving Treasury yields higher. Goldman points out that macroeconomic data has also improved lately, citing recent consumer price index data that was viewed as encouraging.

So what does this all mean for the future of the reflation trade? Consider Goldman optimistic.

“We think this repricing can continue,” wrote Cahill. “With continued progress on the policy front, alongside strong growth, low unemployment and continued upside risk to inflation indicators, we think there are reasons to believe that the recent reversal of pessimistic growth and dovish policy expectations can continue.”

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