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Bond Market is "Higher Power" that will check Trump [1]
['This Content Is Not Subject To Review Daily Kos Staff Prior To Publication.']
Date: 2025-06-13
Bond auctions, where the Treasury tries to sell U.S. Bonds to investors, have been underperforming lately, as foreign investors are pulling back in their demand. As an example, as Barron’s reported last month, there has been softening demand for the US 20 year treasury note.
Foreign governments, like China, in response to a newly belligerent USA, are starting to unwind their US treasury holdings, retaliating against tariffs, and leaving domestic buyers like pension funds the primary consumer for treasury offerings. But with deficits on the rise, these funds will demand higher interest rates to compensate for the increased risk intrinsic to treasury bonds. Already mortage rates are getting up to the 7% ballpark. As interest rates on bonds rise due to weak demand caused by foreign buyers unwinding positions and domestic buyers wanting more risk compensaton, this may cause interest rates like mortgages to continue to increase.
The Federal Reserve may need to start quantitative easing again, some predict. This is fancy speak for buying treasury notes because nobody else wants to, or “printing money”, in basic terms. Japan is seeing weakness in their own bond market due to similar policies of an ever increasing deficit combined with stagnating economic growth.
The United States is not immune from the laws of economics, any more than Japan is. As Trump continues to increase the deficit to fund tax-givaways for the rich, US treasuries will look increasingly uninviting to investors, driving up interest rates, and causing the Fed to have to print more money to try to keep markets liquid. This combination leads to stagflation: increased inflation due to Fed printing money, and economic recession due to high interest rates (e.g. people will not be able to afford homes due to rising mortgage rates).
Carter and the Democrats had stagflation in the 1970’s and it led to Reagan and the sweeping changes made, for good or for ill, to the American political system. What is good for the goose is good for the gander. Staglation caused by Trump’s failed policies will give the Democrats something to unify behind in the midterms and in 2028. Trump has often seemed unstoppable, and even, to his more rabid supporters, supernatural. But he is not above the laws of economics, as the bond market is starting to show.
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