Jill On Money: Bond market forces Trump to blink
It has been a period of time just weeks if you can believe it since President Donald Trump displayed his posterboard tariff plan in the Rose Garden on April Financial markets have been roiled trading partners have volleyed back tariffs of their own and one week after the original announcement the president backed down from a few of the more extreme tariffs that he had originally laid out Related Articles Here s what happens if you don t file your taxes A fifth of Americans are on Medicaid Selected of them have no idea Plenty of Bay Area taxpayers might get a refund from Uncle Sam Jill On Money Trump tariffs More than a little disturbance Can California s largest retirement system handle Trump s tariff turmoil Although much attention was placed on the stock arena gyrations it was the bond area that caused Trump to blink As a reminder a bond purchase is essentially a loan to an entity which can be a administration a state a municipality or a company The loan is established for a predetermined period at a fixed rate of interest Borrowers are on the hook for interest payments either at periodic intervals usually every six months or at the end of the agreement when they are required to repay the obligation in full Of all the bonds available those issued by the U S regime are seen as the safest because it has generally been unthinkable to consider that the U S authorities would not repay its obligations Typically in moments of stock sphere frenzy or when recession fears spike investors will sell risky assets like stocks and pile into the safety and safety of U S ruling body bonds In fact this is what happened in the two days after the reciprocal tariffs were disclosed Prices jumped and the yield on the -year treasury dropped below percent a level not seen since last October The global financial system relies on a well-functioning U S bond sphere but from April to April the bond area demonstrated signs of extreme stress All of a sudden investors were selling regime bonds pushing long-term interest rates higher Economic historian Adam Tooze points out that the bond sell-off was amongst the largest ever seen the largest since There were likely a minimal reasons for the reversal including that several investors were selling bonds to cover stock territory losses hedge funds were unwinding complicated strategies that moved against them and foreign investors were selling in response to the start of the tariff war Nobel-prize winning economist Paul Krugman noted the Trump tariffs have disrupted the plumbing of the financial system leading to soaring interest rates on U S authorities debt Trump administrators who cavalierly discounted the initial sell-off in the stock sector were forced to acknowledge that the much larger bond realm reaction was flashing a big warning sign that read STAND DOWN ON TARIFFS and that s exactly what Trump did when he blinked and declared the -day pause on April Even so tariff levels remain steep According to analysis from the Budget Lab at Yale University the U S effective tariff rate level is the highest since Tariffs are likely to slow down enhancement increase prices and lower profits which is why recession calls are increasing Whether or not we get there hinges on the ultimate level of tariffs and how long they remain in place One big hurdle will be both consumer and business confidence both of which have taken a nosedive of late On April the University of Michigan shared that its Consumer Sentiment Index had sunk to a level that is weaker than it was during the Financial Emergency As we have learned over the past two weeks sentiment can shift on a dime plunging markets into chaos or propelling them higher That s a good reason to hold steady and avoid making any changes in your retirement or outlay accounts unless you need the money within the next - months Related Articles Bay Area coffee roasters hit with tariffs in perfect storm More than affordable homes are eyed for San Jose retail property This is irreplaceable Locals fight to save historic East Bay theater from demolition Molten material from idle Southern California Edison tower triggered Eaton fire attorney alleges Medi-Cal under threat Who s covered and what could be cut Jill Schlesinger CFP is a CBS News business analyst A former options trader and CIO of an resources advisory firm she welcomes comments and questions at askjill jillonmoney com Check her website at www jillonmoney com
