Why US Treasury Bonds Have Paused Trump’s Tariff Plan
Recently, an increase in the US 10-year Treasury bond yield has forced US President Trump to implement a 90 day pause on some of the larger tariffs recently announced. In this article, we review why this has occurred and what links exist between the US Treasury bond yield and Trump’s tariff plan.
US Treasury Bonds
Firstly, let’s do a quick refresher on US Treasury bonds. Treasury bonds are debt securities issued by federal governments to finance its expenditures and fund fiscal deficits. US Treasury bonds are usually considered one of the safest investments globally due to the backing of the US government. The largest group of holders of US Treasuries are US investors (around 55%), followed by foreign holders (around 24%) with the largest foreign holders being Japan and China.
The 10-year US Treasury bond is considered a cornerstone of the global financial system. It is widely regarded as a benchmark for other interest rates. It is a key indicator of investor sentiment and economic conditions. The U.S. government initially sells 10-year Treasury bonds at auction, and they can actively be bought and sold on the secondary market. Supply and demand directly influence bond prices. When investors sell off bonds and prices fall, yields rise, and when investors buy and prices increase, yields fall.
Trump Tariffs
Recently, due to Trump’s tariff plan, US Treasury bonds have sold off, as investors are turning away from the land of the free and investing their money elsewhere. Usually during times of uncertainty, investors flock into safe haven assets like US Treasuries and the USD (and Gold for example). However, this time it’s different. It’s the US Government itself that investors are worried about. This is why many are saying that Trump’s trade war is undermining the US debt market.
The interest paid on Treasury bonds is a significant component of the US federal government’s budget. The recent sell off has pushed the 10-year yield from 3.99% to over 4.5% over a day 10-day period since the announcement. As the yield on 10-year Treasury bonds rises, the cost of borrowing for the government increases. Therefore, this small increase in yield can have major negative impacts to the US Budget. This is the exact opposite of what Trump was trying to achieve.
Federal government current expenditures: Interest payments (A091RC1Q027SBEA) | FRED | St. Louis Fed
The chart above shows the US federal interest costs over the past 5 years. As you can see it has been increasing each year and is now well over 1 trillion USD per annum. It represents around16% of total US Government spending.
Final Thoughts on the US Treasury Bond Yields and Trump Tariffs
Since taking office, Trump and Elon Musk launched the DOGE program. Their goal was to reduce government deficits by cutting spending and increasing revenue through tariffs. Elon Musk recently claimed he cut spending by around $150 billion (a figure that has faced dispute). However, reports show that total expenditure has actually increased by $150 billion since Trump returned to office. This is potentially due to rising interest costs. It seems that there are some second and third order consequences of the tariff plan that Trump might not have considered.
Contact Us
If you’re an Australian expat that has questions about how Why US Treasury Bonds Have Paused Trump’s Tariff Plan, or if you’re looking for personalised advice on navigating uncertain market conditions, we’re here to help. At Atlas Wealth, our team of experienced financial advisors can provide tailored strategies to help you stay on track with your long-term investment goals. Contact us today to schedule a consultation and take the next step toward securing your financial future.
Related Information
- Trump’s Tariffs and the Market Reaction
- Check out our weekly Expat Chat Podcast