Why everyone looks closely

Stock markets around the world have been relatively settled this week after a period of chaos, triggered by American commercial prices.

But investors still look closely with part of the market that rarely moves considerably – the US bond market.

Governments sell obligations – essentially an IOU – to collect funds for public spending and in return, they pay interest.

Recently, in an extremely rare decision, the rate that the United States government had to pay on its obligations has increased sharply, while the price of the bonds themselves dropped.

Volatility suggests that investors lost confidence in the greatest economy in the world.

You may think it’s too esoteric to disturb you, but that’s why it matters and how it can change the mind of President Trump on prices.

When a government wants to borrow money, it generally does so by selling bonds to investors in the financial markets.

An obligation is essentially an IOU – in exchange for an investor buying the obligation and lending money, governments pay interest. In the United States, obligations are known as “treasury bills”.

These payments are made in a certain number of years before before a full and final payment is made when the obligation “matures” – in other words, expires.

Investors who buy obligations are mainly made up of financial institutions, ranging from pension funds to central banks such as the Bank of England.

Investors buy state bonds because they are considered a safe place to invest their money. There is little risk that a government will not reimburse money, in particular an economic superpower like the United States.

Thus, when the economy is turbulent and investors want to withdraw money from volatile actions and equity markets, they generally place this species in American obligations.

But recently, this did not happen.

Initially, following the announcement of the so -called “Liberation Day” prices on April 2, when the shares dropped, investors seemed to flock to American obligations.

However, when the first of these prices began on April 5 and Trump doubled his policies this weekend, investors began to pour state obligations, sending the interest rate that the United States government should pay to borrow money.

The so-called yield for the United States government borrowing more than 10 years increased from 3.9%to 4.5%, while yield to 30 years increased to almost 5%. Movements of 0.2% in both directions are considered a big problem.

Why dramatic sale? In short, the uncertainty about the impact of prices on the US economy has led investors to no longer see government obligations as a safe bet, therefore asked for greater yields to buy them.

The higher the risks perceived, the more performance investors wish to compensate to take it.

If the US government spends more on reimbursements in debt interests, it can affect budgets and public spending because it becomes more expensive for the government to maintain itself.

But this can also have a direct impact on households and even more on companies.

John Canavan, principal analyst at Oxford Economics, says that when investors charge higher rates to lend government money, other loan rates that are more likely, such as mortgages, credit cards and car loans, also tend to increase.

Companies, in particular small, are likely to be the hardest affected by any immediate change in borrowing rates, as most owners in the United States have fixed rate agreements between 15 and 30 years. If companies cannot have access to credit, this can stop economic growth and cause job losses over time.

Canavan adds that banks can become more cautious to lend money, which could have an impact on the American economy.

The first buyers and those who wish to return home could also face higher costs, he says, which could have an impact on the longer-term housing market. It is common in the United States for owners of small businesses who are starting to use equity in their home as guaranteed.

After the introduction of prices, Trump urged his nation to “suspend”, but it seems that the potential threat to jobs and the American economy arrested the president on his traces.

Following ROTS on the bond markets, he introduced a 90 -day break for higher prices on each country except China. The coverage rate of 10%, however, on all countries remains.

It turned out to be a pressure point for Trump – and now the world knows.

“Although President Donald Trump was able to resist the sale of scholarships, once the bond market also started to weaken, it was only a matter of time before falling back,” said Paul Ashworth, chief economist in North America in Capital Economics.

According to American media, it was the Treasury Secretary Scott Bessent, flooded with calls of business leaders, played a key role in the swing of Trump.

The reaction of the bond market has led to comparisons with the famous mini-budget of the former British Prime Minister Liz Truss in September 2022. The unlikely tax reductions then frightened investors, who threw British government obligations, which led to the Bank of England to buy obligations to save funds from the collapse.

Some analysts have suggested that the American central bank, the American federal reserve, could have been forced to intervene if the sale had worsened.

Although compulsory yields have settled, some may argue that damage has already been caused because they remain higher than before the general prices are triggered.

“According to the most disturbing aspect of the most disturbing aspect of the (recent) torment … is an emerging risk premium in the obligations of the US Treasury and the dollar, similar to what the United Kingdom lived in 2022”, according to Jonas Goltermann, chief economist of the capital markets.

But unless you are a buyer for the first time or sell your home, the Americans are unlikely to be affected by higher mortgage costs, unlike the British who obtained new fixed offers in the short term.

Since 2010, the foreign property of American obligations has almost doubled, increasing by 3 dollars, according to Deutsche Bank.

Japan holds most of the US Treasury bills, but China, the enemy of the United States Arc in this World Trade War, is the second largest holder of the American government’s debt in the world.

Questions have been raised on the question of whether she triggered the sale of debts in response to being struck by huge prices.

However, this is unlikely because any fire sale “would impoverish China more than it would harm in the United States,” according to Capital Economics.