Synopsis:
BofA assesses speculation around a potential "Mar-a-Lago Accord" (MLA)—a coordinated USD devaluation aimed at boosting US manufacturing while extending the maturity of US Treasury holdings. While the idea has been discussed in media and among clients, BofA sees a low likelihood of it becoming official policy. If implemented, however, the impact on FX and markets would be substantial.
Key Points:
1️⃣ What is the "Mar-a-Lago Accord" (MLA)? 🇺🇸
- Unconfirmed idea of a Trump-led USD devaluation to enhance US manufacturing competitiveness.
- Would include swapping short-term USTs for longer-dated debt to prevent aggressive tariff escalation.
2️⃣ Market Impact If Implemented 📉
- Substantially weaker USD as part of a coordinated devaluation effort.
- Flatter UST yield curve as shorter-duration Treasuries get swapped for longer maturities.
- Higher inflation risks via increased import costs.
- Support for US domestic manufacturing through cheaper export prices.
3️⃣ Skepticism Over Global Cooperation 🌍
- Unlikely that US trading partners would agree to such an accord.
- Any aggressive unilateral action could rattle global markets, leading to volatility.
Conclusion:
BofA sees little chance of a "Mar-a-Lago Accord" becoming official policy but acknowledges the high market impact if it did. A forced USD devaluation could trigger inflationary pressures, a flatter UST curve, and FX volatility, with potential resistance from global partners. For now, it remains a theoretical risk rather than a policy reality.
