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Bond Vigilantes Still Matter
Even in Trump’s crazy world
(Opinions expressed are purely my own and not intended to be investment advice or reflect the opinions of any organizations that I’m affiliated with.)
One interesting thing to come out of these last few crazy days is discovering that while Trump and his administration don’t care about the stock market, they do care very much about the bond market.
It wasn’t the crashing market that forced a tariff reprieve last Wednesday, but crashing bond prices and rapidly rising U.S. Treasury yields.
There are a few reasons for this but the biggest one in my view is Trump’s psychology as someone who’s been in massive debt for much of his business life. To big debtors (not normal borrowers like you and me), the most important number is the interest rate.
The principal doesn’t matter as much because the belief is that as long as you have assets that can act as collateral and a willing debt market, you can always refinance and push the principal further down the road.
Effectively you’re only paying the interest into perpetuity, so the goal is to get that interest rate as low as possible. Lower interest rates have two benefits to big debtors — first they make existing debt easier to service, increasing current cash flow. Second, they allow…
