Liz’s view
It turns out there was a “Trump put.” It just had a lower strike price than we thought and was on a different market.
Investors who had clung to the idea that enough pain would force Donald Trump to buy back his policies — a “put” in market-speak — turned out to be correct, but it wasn’t the $10 trillion that vanished from stock portfolios since last Thursday that did the trick. It was the bond market, where Treasurys had seen their sharpest moves since 2008, that pushed the president back from the brink of a trade war that could have sparked a global recession. The threat of sustained high borrowing costs — “yippy” markets, in the president’s words — took the king of debt from “BE COOL” to blinking in just a few hours.
In head-to-head negotiations during his presidency, Trump has been all but unbeatable, cowing one law firm and university and world leader after another. But the market is too diffuse to be bullied. Its bosses can’t be hit with executive orders or dragged on Truth Social. In the end, the crypto president was beaten by decentralized finance.
“You mean to tell me,” President Bill Clinton famously asked, when told that his bold economic plans would likely cause an untenable spike in borrowing costs, “that the success of the program and my re-election hinges on the Federal Reserve and a bunch of f*cking bond traders?” His political adviser James Carville once said he’d like to be reincarnated as a bond trader: They “can intimidate everybody.”
And they may not be done. While the S&P 500 has regained almost 95% of its post-Liberation Day losses, the bond market is still sulking. Investors are worried about another rug-pull: 90 days is both an eternity in Trump world and a very short window to negotiate 75 trade deals. His 145% tariffs on China still leave the world’s two largest economies in a full-blown trade war, with business caught in the middle.
And the entire episode has undermined confidence in the administration’s handling of the economy — long one of Trump’s strong suits — leading some to wonder if this is America’s “Liz Truss moment,” when the UK government’s budget blunders enraged the bond market (and cost the prime minister her job). Watch today’s auction of 30-year Treasury bonds for a mood check.
Notable
- Among the transactions that drove Treasury yields higher, spooking the White House, was the “basis trade.” Bloomberg’s Odd Lots newsletter explained the history behind the trade, and its magnitude.
- Donald Trump’s experience parallels that of former British Prime Minister Liz Truss, as Martin Sandbu catalogs in the Financial Times.