It is a common urogal that worldwide, financial markets are volatile and receive more attention than they deserve. Many people do not like markets to allow speculation, excessive developments in the real world and react in excess of events. All this is true.
But last week’s events showed us that financial markets have their uses. They act as a control over governments and rebel politicians when they try to implement irrational policies. They can also tell the power, in a way that the army of advisors surrounding world leaders cannot.
Non -reciprocal tariffs
He thought that President Trump’s plan to impose rates was well known, real tariffs or 10-50 percent announced on April 2 were much higher than anyone issued.
This is because the rates were not really “reciprocal.” Instead, they were linked to commercial deficits that commercial partners ran with the United States. The formula shared by the Trump camp suggested that to be eligible for a 10 percent rate, a country had to fight for its commercial deficit with the United States to zero. The opinion articles of economists and warnings of market experts due to the impracticability of this idea were without charging.
But a sudden increase in the United States Treasury yields of April 7 caused a change of opinion. On April 9, after calling an emergency meeting of his advisors, Trump announced a 90 -day pause on tariffs and cut them 10 percent for all Save China commercial partners. When explaining the movement, Trump told journalists: “I thought people jumped a little out of place. They were going crazy, a little scared.” (Getting Yippy, we learn, is a wave term for nervousness).
Of course, with the United States attached to a duty of 145 percent in Chinese and Chinese products that impose Tit tariffs for or 125 percent, the situation is still tense. But the world seems to have gained a 90 -day postponement to negotiate with Trump, reducing the immediate possibility of a global commercial freezing and a recession of the United States/China that seemed like the probable result of the original plan.
Yippy Bond Markets
When the Rate Plan was announced on April 2, the US stock market markets rushed to point out their disgust. The Dow Jones index crashed 12 percent and eliminated around $ 6 billion in market wealth in a week. But it seems to be the scare of the bond market that really forced Trump’s partial withdrawal.
The bond markets seemed initially pleased after Trump put the Government Efficiency Department (Doge) to work by pirate the federal expenditure. Between January 13 and April 4, 2025, the performance in the United States Treasury note to 10 years decreased from 4.8 percent to 3.9 percent
This was to a large extent what the Trump administration wanted, due to its main campaign, the pegs was to reduce the battery of $ 36 billion debt of the United States government. The lowest market yields would have allowed the cheapest refinancing of $ 9 billion in 2025.
But as the war war between the United States and China intensified, the United States Treasury bonds begged to see a SARP sale from April 7. The 10 -year bonus yield shot at a record speed of 3.9 percent to 4.4 percent on April 9.
This hope missed a cheaper refinancing of government debt. A greater concern was whether the mass sale would scare the bidders for the next treasure auctions, which would make refinancing disseminate.
Mass sale makes sense
Since then, several explanations have emerged for what caused the sale of Bondas. One is that the largest foreign treasury bond holders (Japan and China with $ 1,079 billion and $ 761 billion of holdings) were behind it.
They could have sold us treasures in a pique attack with Trump. The initial sale seems to have intensified due to an explosion in the “basic point” trade. Coverage funds with highly water positions in cash arbitration in arbitration in Treasury bonds may have had to relax, due to prices.
It is said that they have more than $ 1 billion of such positions. Despite some conciliatory noises of the Trump camp since then, bond yields have continued to go north.
Even if one discounts some of these as conspiracy theories, there is nothing disconcerting in the sale of treasury in the United States. Trump’s rate plans have created a very good fundamental case for investors to sell treasure bonds in the United States. Tariffs are expected to abruptly accelerate inflation of the United States for the planned future. The United States Federal Reserve is currently in a flexion cycle, but higher inflation could cause a break or even an increase in rates. Rate increases would submit treasures to capital losses.
To add to the mixture, Trump’s internal circle members have bones that require a dollar devaluation. A Waaker dollar would claim more returns for the treasures of the US.
Whatever the reasons, the moment of the sale of treasury is not very conducive to the Trump administration. He has led to whether the US government bonds. Uu. And the dollar are losing their global safe state of refuge. In the past, the duration of every important global crisis that includes the low risk crisis, the conical tantrum and the Covid-Global investors went to the United States Treasury bonds.
This would lead to profits in the dollar and a fall in the yields of American bonds, protecting the US economy of the worst effects of the crisis.
This time, the thought, the actions of the United States, the bonds and the dollar are falling together, leaving the US economy below this protective shield. It remains to be seen if this is an instinctive response or a turning point in the state of the dollar.
Incompatible objectives
In the future, it is not clear what is expected that United States business partners will bring to the table, to climb to tariffs. Trump camp signs about what the United States needs to become great again, are confused.
One, Trump’s criticism about business partners “scaming” the USA. With their tariffs and non -tariff barriers about US goods is quite valid. But he has already rejected zero rate agreements with Europe and Vietnam.
Trump’s formula clearly shows commercial deficits and not tariffs to be the point of conflict. Since the United States is no longer a competitive manufacturer of goods, the lowest tariffs will not automatically lead to US imports in other countries. Therefore, US business partners can reduce tariffs, but have no way to guarantee zero deficits.
Two, Trump has been talking about suffocating inflation and reducing rates to avoid recession. But this is incompatible with high reciprocal tariffs that promise to abruptly increase the prices of US assets. Although tariffs can force some great exporters to relocate manufacturing in the US, the workforce and supply chains necessary to obtain a part of US imports cannot arise in a trice.
Three, Trump’s supporters want the dollar to retain their safe condition, while devaluing it. They seem to believe that the state of the dollar is so sure that great business partners can be convinced to appreciate their own currencies and pay a user rate for dollar holdings.
But a reduced trade deficit of the United States would automatically reduce its large reserves in dollars. Besids, the unsustainable debt of the United States government undermines this leverage.
In general, you can only find a resolution to the tariff war when Trump realizes that the policy objectives are incompatible with each other and decides to throw in the towel on some of its magicians. It is debatable if your advisors tell you this. But we can deepen the financial markets for Bell this cat.
Posted on April 14, 2025