Trump paused for the trade war for 90 days on Wednesday, but bond yields are still not moving in the direction of the administration.
Bond yields increased early Wednesday and remained high even after Trump called a waiting period on most reciprocal rates while leaving the reference rate of 10% in place. Treasury yield to 10 years has further increased by 13 base points to around 4.4%, not far from a peak of 4.45% earned earlier during the day.
The yield decision was the opposite of what Trump said that he was looking for: reducing loan costs for Americans.
“We have reduced the expenses, we have reduced the size of the government, we get more efficiency within the government, and we are going to go into a good interest rate cycle,” said Treasury Secretary Scott Bessent in February, saying that the actions of the administration were the reason why the yields dropped at that time.
But investors do not play Ball now as the Trump trade war is accelerating. They sell American obligations even if the concerns of the Spike recession and the shares are sold for a fifth day on Wednesday.
Investors sold US treasures while new prices on China began on Wednesday, raising the overall price rate on Chinese products at 104%. Later in the afternoon, Trump raised the rate of 125%, even by stopping prices for 90 days for other countries and reducing the rate to a universal right of 10%.
The intra -day peak for the 10th anniversary marks the highest that the yield has been since weeks after the first entry according to Trump, shortly after the president announced a 25% price on Mexico and Canada.
Why did the obligations sold?
Obligations are generally an obvious choice for investors looking for a storm shelter when recession fears are high. Yields often plunge as traders accumulate in ultra-secure treasures.
This is not the case now. Trump pointed out that he did not step back on the American-Chinese trade war.
The markets have some ideas for what could cause sale in bonds.
The first could simply be that investors are not as confident in the United States as a safe refuge in the middle of the tumult.
“Investors have started to wonder if the American government debt is always considered a reliable refuge in the midst of geopolitical and fiscal uncertainty. But there are also concerns of forced sales in the midst of fears that something has not come in complex financial plumbing to which all the markets are based on Wednesday.
However, as Lawrence Gillum points out, the main LPL fixed income strategist, the sale of bonds has become a global phenomenon in recent days.
“Treasury titles have not yet acted as paradise assets. But, if the economic environment is actually softening to the point of an economic contraction, we would expect that treasure yields fall from current levels,” said Gillum.
Investors also fear that China, needing US dollars, can start selling its American Treasurys assets while trade between the two nations is starting to decline. China held $ 760 billion in US treasury at the start of the year, according to data from the Treasury Department.
Finally, there is something called basic trade, which can be partially unrolled. Apollo chief economist, Torsten Sløk, reported this Tuesday as a risk in a note.
The base trade is a bet of $ 800 billion on the treasureals put by the hedge funds – and it is a risk in the event of unexpected shock.
“In the event of an exogenous shock, the long positions very with leverage in the cash flow securities by hedge funds are likely to be quickly disadvantaged,” Slok wrote in a note on Tuesday.
Gillum also pointed out the base trade on Wednesday as a probable source of agitation.
“We will say that the most important cause is the progress of the basic trade and not foreign investors selling obligations to retaliate against prices,” he said.
Trump’s latest prices on China have raised the overall American rate rate at its highest level in more than a century. Andrew Harnik / Getty images
The latest rights over American imports from China have raised the overall American rate of American rate at its highest level in more than a century, a sign that Trump’s trade policies have turned into a full -fledged trade war.
Tensions between the United States and China have been increasing for weeks on the issue of trade. On Monday, China said that it “would fight until the end” after Trump announced an additional 50% rate on the nation, in addition to the 54% tariffs that he announced since it entered.
On Wednesday, Beijing retaliated against the last prices by imposing a reciprocal rate of 84% on American goods, while exhorting “the United States to immediately correct its bad practices”, according to a government statement.
“At one point, hopefully, in the near future, China will realize that the days of tear in the United States and other countries, is no longer sustainable or acceptable,” added Trump in an article on Social Truth announcing the new rate of 125%.
