Trump gets roughed up by a bigger bully: the bond market

Boston Globe

14-04-2025

Last week, President Trump got an Econ 101 lesson on the power of investors who buy and sell US Treasuries, the $36 trillion market that is the backbone of the global financial system.
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A stinging revolt in the form of heavy selling forced Trump
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Treasuries
'Global investors are simply shying away from US assets,' Neil Sun, a portfolio manager at RBC Global Asset Management in Stamford, Conn., wrote in a note Friday.
Why it matters:
Investors have put the administration on notice: De-escalate the trade war, or we'll take our money elsewhere.
'Nobody can figure out what the rules will be five days from now, much less five years from now,' US Senator Elizabeth Warren
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What happens next could shape not only the odds of a recession, but the dollar's role at the center of global finance — a status the US has held since World War II.
At stake are the perks of
having a dominant currency
High demand for dollars lets the government borrow cheaply, even with big deficits — a privilege that trickles down to everyday consumers. America can import more than it exports without triggering a spike in interest rates. And it can wield sanctions as foreign policy weapons.
What's happening:
The new week kicked off with investors struggling to unpack the latest tariff twist.
Trump said Sunday that high-tech products like smartphones, computers, and semiconductors would be exempt from high
That raised hopes that essential electronics like iPhones, laptops, and Nvidia's blockbuster AI computer chips, would be spared the most onerous import taxes.
But Trump didn't back off his combative rhetoric.
'NOBODY is getting 'off the hook,'' he wrote on Truth Social.
Stock prices rose as tech companies recouped some of their recent losses. Treasury prices inched higher. The dollar fell for a fifth day.
The big picture:
Despite the modest rally, Treasury investors — the biggest include central banks, US commercial banks, mutual funds, pension plans, and insurance companies — see more danger ahead.
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'I don't think we're seeing dysfunction — in the sense of liquidity completely drying up in the markets — but a pattern suggestive of a loss of confidence in US economic policy,' former Treasury Secretary Janet Yellen said on CNBC Monday. The pattern 'is really very worrisome,' she said.
Business and consumer confidence is eroding. A further pullback could trigger a downward spiral: less spending and investment, falling stock prices, more layoffs, higher interest rates, slower growth.
Thirty-seven percent of economists put the odds of a downturn at 50 percent or higher, according to the National Association for Business Economics — up from fewer than 10 percent before the trade war.
Non-U.S. investors hold $8.5 trillion in Treasuries.
China, which holds the world's largest stash of foreign currency reserves, has already retaliated with tariffs and
Would President Xi Jinping dump Treasuries to turn up the heat on Trump? 'They have that in their back pocket,' said Boston College economist Brian Bethune. But a mass sell-off would crater prices
— including those of any US debt China still holds — so it's unlikely.
Final thought:
The powerful bond market isn't buying Trump's claims that tariffs will revive US factories and jobs.
The president admits rebalancing global trade won't be painless but argues Americans will be richer in the long run. Investors are focused on the pain.
Some speculate that Trump is willing to inflict economic pain to gain more leverage over the Federal Reserve to cut interest rates. The president denies it, yet
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A showdown with Fed chair Jerome Powell — who has said officials will wait to assess the trade war impact on inflation and jobs —
If he wins, Powell might be next.
But undermining the Fed's independence would be a Pyrrhic victory.
Investors don't trust a central bank beholden to politicians — and they would trample each other racing for the exits. Bond investors would be the first to bolt.
Larry Edelman can be reached at