The Capital Markets portal resembles the words of James Carville, adviser to President Bill Clinton: “I used to think that if there is reincarnation, I would like to return as a president or pope (…). But now I would like to return as a bond market. He is able to scare everyone.” In this way, Carville commented on the 1994 bond crisis, which forced a change in the direction of the White House policy.
As Al-Jazira notes, bond markets have repeatedly corrected government decisions. An example is the fall of Prime Minister Liz Truss, which had to pass from office after just 49 days, when the profitability of British bonds increased rapidly after the announcement of the tax reduction plan.
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Treasuries as a barometer of trust
As NBC writes, US tax bonds, known as Treasuries, play a key role in the global financial system. Their high interest rate means an increase in the costs of servicing the USA enormous debt. Despite this, they are considered the safest securities in the world, not only because of the strength of the American economy, but also the stability of the political system and the rule of law.
The profitability of these securities affects the entire financial system: from interest rates, through the costs of mortgage and operational loans, to the interest rate on credit cards. Their situation is also seen as an indicator of the condition of the economy.
After the announcement of customs duties by Trump on April 2, the profitability of 30-year-old Treasuries reached the highest level since 1982, and 10-year-old recorded the highest increase in 25 years. According to “Washington Post”, concerns concerned not only investors, but also foreign central banks that could start selling out American bonds.
NBC News indicates that Trump's “every element” of Trump's statement is true. Deutsche Bank warned that Treasuries can lose their status of the safest bonds in the world.
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Alarm for the economy and politics
As CNN comments, the profitability of 10-year bonds is a key indicator of the state of the economy. Although the trade war initiated by Trump caused falls on the stock exchanges, the bond market was recognized as a trailer of a potential crisis.
“This is a very serious signal,” says an economist from the University of California in Berkeley, Anastassia Fedyk. The sale of bonds suggests that investors doubt the US's long -term ability to repay the debt.
Trump, although he temporarily reassured the situation with the decision to suspend his duties, failed to dispel doubts about his policy. Mark Blyth from the Brown University in an interview with NBC summed up the mood: “The whole world came to the conclusion that the US government has no idea what it is doing.”
