The Bond Investors Who Got Trump to Pause His Tariffs

Bloomberg

Apr 25, 2025

In the days before the April 9 launch of his long-awaited tariffs on most imports to the US, President Donald Trump was unwavering. He didn’t flinch when the stock market plunged, wiping out more than...

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He didn’t flinch when the stock market plunged, wiping out more than...</p>\n\n<a href=\"https://www.bloomberg.com/explainers/bond-vigilantes?srnd=homepage-asia\">Source Link</a>\n\n</div>\n","source":"lsy1584095487587","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>The Bond Investors Who Got Trump to Pause His Tariffs</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nThe Bond Investors Who Got Trump to Pause His Tariffs\n</h2>\n\n<h4 class=\"meta\">\n\n\n2025-04-25 08:04 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.bloomberg.com/explainers/bond-vigilantes?srnd=homepage-asia><strong>Bloomberg</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>In the days before the April 9 launch of his long-awaited tariffs on most imports to the US, President Donald Trump was unwavering. He didn’t flinch when the stock market plunged, wiping out more than...</p>\n\n<a href=\"https://www.bloomberg.com/explainers/bond-vigilantes?srnd=homepage-asia\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":".SPX","symbol_name":"S&P 500 Index","start_time":0,"source_url":"https://www.bloomberg.com/explainers/bond-vigilantes?srnd=homepage-asia","article_id":"1162842815","we_media_id":null,"thumbnails":[],"rights":{"source":"lsy1584095487587","url":"https://www.bloomberg.com/explainers/bond-vigilantes?srnd=homepage-asia","rn_cache_url":null,"directOrigin":true},"url":"https://stock-news.laohu8.com/highlight/detail?id=1162842815","pubTimestamp":1745539478,"columns":[],"sourceInfo":{"source_id":"lsy1584095487587","name":"Bloomberg"},"weMediaInfo":null,"summary":"When a government spends well beyond what it’s collecting in revenue, or pursues policies that stoke inflation, the value of bonds tends to decline. A government typically pays for spending by issuing bonds, and as the bond supply rises, the value of the bonds investors are already holding tends to decline, all else equal. And rising inflation means the interest that bond investors collect from their holdings will be worth less in the future.To force a reversal in policy and rein in bond oversup","collect":0,"end_time":0,"defaultTopTitle":"bloomberg.com","property":[],"viewcount":null,"language":"en","relate_stocks":{".SPX":"S&P 500 Index",".IXIC":"NASDAQ Composite",".DJI":"道琼斯"},"translate_title":"让特朗普暂停关税的债券投资者","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{".DJI":1.1,".SPX":1.1,".IXIC":1.1},"content_text":"In the days before the April 9 launch of his long-awaited tariffs on most imports to the US, President Donald Trump was unwavering. He didn’t flinch when the stock market plunged, wiping out more than $6 trillion in market value. And he was unmoved when a chorus of foreign leaders — and some members of his own party — registered their opposition to the tariffs.But in the hours after the tariffs went into effect, the Treasury bond market tanked. Many bond investors, concerned that the duties would accelerate inflation and reduce foreign demand for US assets, started dumping their holdings in order to pressure the administration to reverse course.It worked: Just 13 hours after the tariffs had gone into effect, Trump announced that he would pause them. “The bond market is very tricky,” he conceded. “I was watching it.”A major bond sell-off is a five-alarm fire for any government. Selling bonds drives up their yields — the return investors can expect for lending money to a government. Rising bond yields mean governments have to pay more to borrow money. Governments borrow to fund the services they provide, because those costs usually exceed the amount of revenue they take in through taxes and other sources. If a government keeps borrowing when yields are high, the interest payments on its debt will soar.An extended bond sell-off could make it impossible for Trump to push through tax cuts — his top domestic goal — without sending the budget deficit skyrocketing.So he relented. After the April 9 tariffs had gone into effect, the yields on bonds that mature over 30 years rose above 5% — a two-year high. When Trump declared the pause, they came down to about 4.8%.To economist Ed Yardeni, Trump’s U-turn was another victory of many for “bond vigilantes” — investors who sell off bonds to pressure a government to change what they see as reckless management of the economy.“The Bond Vigilantes have struck again,” wrote Yardeni, a veteran investment strategist, after Trump announced the tariff pause. “As far as we can tell, at least with respect to U.S. financial markets, they are the only 1.000 hitters in history.”How do bond vigilantes operate?When a government spends well beyond what it’s collecting in revenue, or pursues policies that stoke inflation, the value of bonds tends to decline. A government typically pays for spending by issuing bonds, and as the bond supply rises, the value of the bonds investors are already holding tends to decline, all else equal. And rising inflation means the interest that bond investors collect from their holdings will be worth less in the future.To force a reversal in policy and rein in bond oversupply or inflation, bond investors dump bonds en masse. By doing so, they are acting as “bond vigilantes.”As the bond prices fall, the yields rise so high that the government cannot afford to borrow anymore without the risk of defaulting on its debt and causing a fiscal crisis. In what amounts to a buyer’s strike, these vigilantes thereby force the government to change course and, as they see it, put its fiscal house in order.Yardeni coined the term in a 1983 research report titled Bond Investors Are the Economy’s Bond Vigilantes. “[I]f the fiscal and monetary authorities won’t regulate the economy, the bond investors will,” he wrote. “The economy will be run by vigilantes in the credit market.”Vigilantes have no organized groups, a specific yield level they target or even a public face. They are instead countless private bond investors — large and small — who collectively act out of self-interest.Have bond vigilantes influenced government decision-making before?Yes. One of the most famous victories scored by bond vigilantes was in the 1990s. By threatening to strike, they forced President Bill Clinton to scale back his ambitious domestic agenda — which was to include a middle-class tax cut — during his first term to focus on deficit reduction instead.Clinton was stunned to find himself at the mercy of the bond market. Journalist Bob Woodward’s history of the Clinton White House, The Agenda, quoted Clinton raging to aides, “You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of f—-ing bond traders?”The impact of the bond market prompted Clinton political adviser James Carville to say in 1993: “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”Vigilantes also struck in Sweden in the 1990s. At the time, the government was running a large budget deficit and the economy was barely growing. Bjorn Wolrath, an investor at Stockholm-based insurer Skandia Group, pledged in July 1994 not to buy “a single Swedish bond” unless the government cut the deficit. As bond investors sold their holdings, the government was forced to slash spending.In the following decades, vigilantes were largely inactive. Even after the 2008 financial crisis, when US government debt expanded as a result of stimulus measures and reduced tax revenue, private bond investors had little influence on policy. The Federal Reserve headed them off by buying trillions of dollars of government bonds, which kept interest rates near zero. These efforts, along with tamed inflation — which was the result of anemic economic growth — pinned bond yields near historical lows. Any selling by vigilantes was overwhelmed by the almighty Fed. Vigilantes were stymied.How did the Covid-19 pandemic change the bond market?Bond investors finally returned in the aftermath of the pandemic. The massive stimulus unleashed by governments around the world stoked inflation and boosted government debt to unprecedented levels in the US and elsewhere. In response, central banks raised interest rates aggressively, which led to a record 17% loss in returns on government bonds globally in 2022.That year, vigilantes claimed a major victim. Alarmed by the UK government’s plan for the biggest tax cuts since 1972, investors dumped the country’s bonds fast and furiously. The market rout forced Prime Minister Liz Truss to resign, 44 days into her term.In 2024, global government debt exceeded $100 trillion for the first time, and more governments are feeling the pressure from vigilantes. “The UK is a bit of a canary in the coal mine,” said Mark Dowding, CIO of the BlueBay Fixed Income unit at RBC Global Asset Management. “What the bond market wants to see first and foremost is that the country is living within its means.”Is the US headed for a debt crisis?On the campaign trail, Trump’s running mate, now-Vice President JD Vance, said that he was concerned there could be a “bond-market death spiral” during a second Trump administration. It was an allusion to a scenario where a higher debt level drives up borrowing costs, which slows the economy, which, in turn, makes it more difficult for the government to pay back debt, leading to economic crisis.Even after Trump hit the pause button on the April 9 tariffs, financial markets remained worried about the “death spiral” possibility. After a brief rally, Treasuries tumbled along with the dollar, an unusual combination that reflected how Trump’s unpredictable tariff policies have eroded investors’ confidence in US assets.Now, Trump’s economic plans, including tax cuts, could cause even bigger deficits, as well as the potential for accelerating inflation. A crisis in which the US government can no longer finance its debt is “likely to happen” in coming years “if the budget deficit is not cut a lot,” said Ray Dalio, the billionaire founder of hedge fund Bridgewater Associates.The US’s debt is already approaching the size of the economy, double the level in Clinton’s era. In fiscal year 2024, the US deficit was equivalent to 6.4% of the country’s gross domestic product — a level typically seen only during recessions. The interest payment on the $28 trillion debt alone was more than what the US spends on national defense.How concerned are bond investors about Trump’s agenda?There isn’t a precise way to quantify the level of concern that bond holders are feeling. But one can look at the so-called term premium as a proxy. It measures the extra yield investors demand to hold longer-term bonds instead of short-term debt. When the premium increases, it means investors are getting more worried about the long-term sustainability of US fiscal policy and demanding more compensation.A model developed by the New York Fed shows the term premium on 10-year Treasuries rose to about 0.7% in April, a level last seen in 2014.Treasury Secretary Scott Bessent, a former hedge fund investor, has sought to appease vigilantes. He has said he’d urge Trump to slash the deficit to 3% of GDP by the end of his term. He also said the solution to lower debt is to cut government spending, increase energy supply to get inflation down, and institute pro-growth tax cuts and deregulation. Investors, however, have been skeptical about the extent to which spending cuts and lower deficits could be achieved.Bessent is “basically acknowledging that the bond market matters, and it’s very reminiscent of what happened to Bill Clinton,” said Yardeni.“The good news is the deficit is a political problem,” he went on. “It can be solved. It just requires political will. Sometimes you need to scare politicians, and bond vigilantes are in the position to do that.”","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0,"need_auth":false,"code":"91000000","status":"200"}}}