Why can the bonds, not stocks, are the following economic crisis in the United States? Financial markets

The tariff of US President Donald Trump was exposed to financial markets worldwide.

But while Salvoes Trump has sent stock markets on a swirl, the disturbances in the bond markets – specifically the fall of bonds in synonyms with stocks – led to an increase in anxiety between economists.

What are the bonds?

The bonds are a type of investment that includes funds for a buyer lending to a government or company for a specific period.

In exchange for their investments, the buyer receives interest payments at a specific rate at regular intervals, in addition to the original investment amount when the bond is due on a pre -set date.

While it usually provides lower returns than shares, government bonds are widely considered among the most low -risk investment options.

The bonds issued by the US Treasury are especially preferred by investors as a safe haven because they enjoy the support of the most powerful government and the highest economy in the world.

Due to its reputation as a safe origin during the periods of economic fluctuations, the treasury prices – known as “bills”, “notes” or “bonds”, based on the date of their entitlement – usually rise with the decrease in stock prices.

Treasury bond prices and returns move in opposite directions – the more cheaper bonds, the higher the payment of interest.

What was happening in the bond market?

After Trump announced an experimental tariff for dozens of trade partners in the United States on April 2, investors began selling the US treasury with the longest maturity in large quantities, sending higher returns.

The sale came despite the huge losses in the US stock market, which reduces the usual style of investors who rush to assets that are usually safe havens.

At its peak on Friday, the return on the cabinet increased for 10 years to 4.58 percent, compared to less than 3.9 percent in the previous week.

The cabinet sales were widely seen as a dangerous warning sign for the American economy as he suggested that investors have an interest on Washington’s ability to pay its debts in the long run.

In the midst of the market turmoil, Trump announced on Wednesday a 90 -day stand for most of the “mutual” tariffs.

If left without deterrent, the increasing cabinet revenues have the ability to snow in an economic crisis.

The highest returns make it more expensive for the US government to borrow money and national debt service – which is currently reaching more than 36.22 trillion dollars – which increases the risk of failure to pay.

It also raises the cost of borrowing and debt service to citizens and banks, whose public budgets are decisive to the health of the public financial system.

“I think it is a very dangerous indication,” said Anastasia Fedic, an assistant professor of financial at Haas College at the University of California Berkeley.

“Investors do not necessarily expect that the US government will be unable to pay its debts in the short term, but investors face a lot of uncertainty about directing the American economy.”

The ability of bond markets to change the government policy is well documented.

The resignation of former UK Prime Minister Liz Toss in 2022 after just 49 days in his post was largely driven by the sudden rise in bond returns that followed a mini -tax budget.

He also announced that he had stopped for 90 days, Trump admitted that people were getting “a few bonds” around the bond market.

“The bond market is very difficult,” Trump said.

What is the next of the bond market?

While the treasury revenues have decreased since Trump’s face, it remains high compared to recent weeks amid constant uncertainty about how the American president’s trade war appeared.

On Monday, Trump opened investigations into semiconductor imports and pharmaceutical products at a possible introduction to a new tariff, while also floating on the possibility of postponing his duties in the auto industry.

The Trump administration has imposed a 145 percent tariff on China since last week, while the fate of its “mutual” duties on dozens of other countries after it stopped for 90 days.

“There is still a lot of uncertainty, and the situation of the market is very fragile,” said Fedic.

“What will happen at the end of the 90 -day pause? How will the trade war with China develop specifically? For bonds, China is the second largest foreign government holder for US government debts, so a possible escalation can see China to empty some of these situations strategically.”

In an interview with Bloomberg TV on Monday, US Treasury Secretary Scott Beesente liquidated the sales of the treasury and the suggestion refused that the country’s position as a financial safe haven might be in danger.

Pesint said the cabinet is a “long run” that is needed to take action, but it has a “large tool group” at its disposal, including the option to expand the debt replay program.

“The federal reserve has tools at his disposal to help stabilize things, for example by quantitative mitigation- buying more long-term US debt- as we saw at the beginning of the Covid’s pandemic,” said Felck.

“I think one of the biggest issues, at the present time, is the uncertainty. There are a lot of fluctuations and little certainty in commercial policy, so that investors are not worried, but the Federal Reserve also faces difficulty planning to respond to politics.”