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- Trump Tariffs Shake Faith in The Safety of U.S. Bonds
Trump Tariffs Shake Faith in The Safety of U.S. Bonds
Long seen as a sure bet in global finance, treasuries now reflect uncertainty
Matt Davis
April 14, 2025
The front page carries an image of the effects of a Russian attack on the Ukrainian city of Sumy over the weekend. PEACE seems no nearer to the territory despite what we were promised.
Morning! I’m so glad I phoned it in on Saturday about the U.S. bond market, because this morning’s lead story by Peter Goodman is on the same issue, but now it’s Monday!
Lucky for all of us, I have the motivation of an ant colony this morning. So, let’s find out why bonds matter, eh?
He was so good in this scene that it probably ruined his life. Just like Boring Bonds could now ruin yours.
Bonds are like the dentists of financial life. They’re dependable and you get what you pay for. There are rarely any unpleasant surprises. You feel a bit of pain when you go see them, because by comparison, equities pay a more substantial return over the long run. But when you’ve been hurt by the risk associated with equities? You want to hang around with them.
“There are not many certainties in the world of money,” Mr. Goodman writes. “But this traditionally has been one of them: When life turns scary, people take refuge in American government bonds.”
Yet turmoil in bond markets last week revealed the extent to which President Trump has shaken faith in that basic proposition, challenging the previously unimpeachable solidity of U.S. government debt. His trade war — now focused intently on China — has raised the prospect of a worldwide economic downturn while damaging American credibility as a responsible steward of peace and prosperity.
Nothing like shaking basic certainties, especially in financial markets, is there?
“The whole world has decided that the U.S. government has no idea what it’s doing,” said Mark Blyth, a political economist at Brown University.
That’s how you get the lead quote on page A1 of the New York Times, Mark!
I’m going to let the reporter explain the complex stuff here because honestly, he’s good at it.
An erosion of faith in the governance of the world’s largest economy appears at least in part responsible for the sharp sell-off in the bond market in recent days. When large numbers of investors sell bonds at once, that forces the government to offer higher interest rates to entice others to buy its debt. And that tends to push up interest rates throughout the economy, increasing payments for mortgages, car loans and credit card balances.
I own about $10,000 in Treasury bonds. Good for me. Because last week, the yield on the closely watched 10-year Treasury bond rose to 4.5 percent from just below 4 percent (although it’s possible I’ll need to sell them all to pay for eggs before I realize that modest increase in their long-term value—I bought them to keep them, not to trade them, and on the basis that they were a risk-free asset).
If we were talking about equities, a .5 percent shift would be something that might happen in a morning, but in the bond market it’s the most pronounced spike in nearly a quarter century. At the same time, the value of the American dollar has been falling. And some fear that China, which holds $761 billion in U.S. Treasury debt, could also be selling as a form of retaliation for American tariffs.
Let’s have Peter give us a nice metaphor for all this, shall we?
Given the many factors playing out at once, the sharp increase in yields for government bonds registers as something similar to when medical patients learn that their red blood cell count is down: There may be many reasons for the drop, but none of them are good.
And let’s have the quotable Mr. Blyth explain that again.
As Mr. Blyth put it, Treasury bills have devolved from so-called information invariant assets — rock-solid investments regardless of the news — to “risk assets” that are vulnerable to getting sold when fear seizes the market.
Got it, yet? The bottom line is that global investors who have for years had confidence in America are less confident than they used to be, because Donald Trump is a liability. As “most economists describe it, global trade is being sabotaged without a coherent strategy.”
When he holds his fist up it’s because he’s powerful and strong and important. Not because he’s desperate to appear that way and inside, he’s a traumatized child who should have gone to dozens of rounds of therapy but instead, decided to traumatize the entire world.
This reassessment of America’s status as the world’s economic safe harbor means mortgages, credit cards and auto loans will get more expensive for American consumers.
Mr. Trump has “broken with eight decades of faith in the benefits of global trade: economic growth, lower-priced consumer goods and a reduced risk of war.”
Those seem like pretty good benefits to global trade, to me, Don! You sure?
I get that showing the world your fist from your taxpayer-funded airplane is fun, but…?
The broader effects of all this could “metastasize into a recession.”
Because Donald Trump.
I’m glad it’s only Monday because I’m ready for the news cycle to get better through the week, aren’t you? Bonus points: It’s spring break! Let’s go to the playground!
Say, is there a story on the front page that might make me feel better?
Sure. There’s a profile of the next huge WNBA star, Paige Bueckers, who has “mad rizz” and just won the NCAA championship:
Thanks for letting me read the newspaper so that you don’t have to!
Matt Davis lives in Manhattan with his wife and kid.