The rates of the president of the United States, Donald Trump, have discarded worldwide financial markets.
But while Trump’s commercial salvings have sent a roller mountain to the stock markets, it is the agitation in bond markets, specifically the fall of bonds in conjunction with actions, which has caused the greatest concern among economists.
What are the bonds?
Bonds are a type of investment involving the buyer who lends money to a government or corporation for a specific one.
In exchange for its investment, the buyer receives interest payments in a specified at regular intervals, in addition to the sum of original investment on the maturation of the bond on a predetermined date.
Although it generally provides lower yields than shares, government bonds are considered widely among the most low -risk investment options.
Bonds issued by the United States Treasury are especially favored by investors as a safe shelter asset, since they have the support of the most powerful government and economy in the world.
Due to its reputation as safe periods of the economic volatility of the assets, the prices of the treasure bonds, which are known as “invoices”, “notes” or “bonds”, depending on their expiration date, generally increase as the prices of the shares fall.
The prices and yields of the treasure bonds move in opposite directions: the cheaper the bonus is, the greater the interest payment.
What has been happening in the bond market?
After Trump announced radical tariffs in Didens of US commercial partners on April 2, investors began selling the most expiration of the United States in large quantities, sending very high yields.
The mass sale occurred despite the great losses in the United States stock market, which increased the usual pattern of investors that rush the assets that are generally considered for safe values.
In its peak on Friday, 10 -year treasure yield increased to 4.58 percent, compared to less than 3.9 percent per week before.
The sale of treasury was widely seen as a serious warning sign for the US economy, since it suggested that investors had qualms about Washington’s capacity to pay their long -term debts.
Amid the market agitation, Trump announced on Wednesday a 90 -day break in most “reciprocal” tariffs.
If left without control, the yields of the growing treasure have the potential to snow in an economic crisis.
The highest yields make it more expensive for the United States government to borrow money and address the national debt, which is currently more than $ 36.22 billion, increasing the risk of breach.
They also increase the cost of loans and service debt for citizens and banks, whose balances are critical for the health of the general financial system.
“I think it is a rather serious indicator of the group,” Anastassia Fedyk, an assistant professor of finance at the Haas Business School of the University of California Berkeley told Al Jazera.
“It is not necessarily the case that investors expect the United States government to not be able to pay their debts in the short term, but investors face a lot of uncertainty regarding the direction of the US economy.”
The ability of bond markets to change government policy is well documented.
The resignation of the former Prime Minister of the United Kingdom, Liz Truss, in 2022 after only 49 days in office, was largely promoted by the sudden increase in the yields of the bonds that followed their mini tax budget.
When he announced his 90 -day needle, Trump acknowledged that people had a leg obtaining a “little husband” on the bond market.
“The bond market is very complicated,” Trump said.
What follows for the bond market?
While treasure yields have decreased from Trump’s face, they remain elevated with the last week in the midst of uncertainty about how the commercial war of the president of the United States will develop.
On Monday, Trump opened research on semiconductor imports and pharmaceutical products in a probable precursor of new tariffs, while floating the possibility of a postponement of their duties in the automotive industry.
The Trump administration has imposed a 145 percent rate to China since last week, while the fate of its “reciprocal” duties from other countries after its 90 -day break is still an uncle.
“There is still a lot of uncertainty, and the market situation is quite fragile,” Fedyk said.
“What will happen at the end of the 90 -day break? How will the trade war evolve with China? For bonds specifically, China is the second largest owner or debt of the United States government, so a potential escalation could position itself.
In an interview with Bloomberg Television on Monday, the United States Secretary of the Treasury, Scott Besent, interprets the sale of treasury and dismissed the suggestion that the country’s position as a financial safe port could be at risk.
The Treasury is a “long way” of the need to take action, but it has a “large tool kit” at your disposal, including the option to expand its debt program program, Besent said.
“The Federal Reserve has tools at its disposal to help stabilize things, for example, through quantitative Asing, buy more from the debt of the US government in the long term, as we saw at the beginning of the Covid pandemic,” said Fedyk.
“I think that one of the biggest problems, at this time, is uncertainty. There are so many fluctuations and so little certainty in commercial policy, that investors are not only worried, but that politics is difficult to plan difficult planning.” “”