Since President Donald Trump's 'Liberation Day' tariffs pushed the U.S. bond market into revolt in April, his administration has carefully tailored its policies and messaging to prevent another flareup. But the truce remains fragile, some investors say.
A reminder of that fragility came on November 5 when the Treasury Department signaled it was considering selling more long-term debt. The same day, the Supreme Court began hearing arguments over the legality of Trump's sweeping trade tariffs. Benchmark 10-year bond yields, which have fallen steeply this year, spiked more than 6 basis points – one of the biggest jumps in recent months.
With the market already uneasy about the size of U.S. federal deficit, the Treasury proposal stirred fears among some investors of upward pressure on long-dated bond yields. The Supreme Court case, meanwhile, raised doubts about a major source of revenue to service the $30 trillion pile of government debt held by the market. Citigroup analyst Edward Acton called the moment “a reality check" in a November 6 daily report.
Reuters spoke to more than a dozen executives at banks and asset managers overseeing trillions of dollars in assets who said that beneath the relative calm of bond markets in recent months a battle of wills is playing out between the administration and investors concerned about the persistently high U.S. deficit and debt levels.
Reflecting those worries, the so-called "term premium” - the extra yield investors demand for holding U.S. debt for 10 years - has once again started to rise in recent weeks. “Bond markets’ ability to terrify governments and politicians is second to none, and you've seen that in the U.S. this year,” said Daniel McCormack, head of research at Macquarie Asset Management, referring to April’s bond crash which forced the administration to temper its plans for tariff increases.
Over the long term, the failure to resolve strains on public finances can create political issues as voters grow "persistently disappointed with government delivery," McCormack said. Treasury Secretary Scott Bessent – a former hedge fund manager - has repeatedly said he is focused on keeping yields down, especially on the benchmark 10-year bond, which affects the cost of everything from the federal government’s deficit to household and corporate borrowing.
"As Treasury Secretary, my job is to be the nation's top bond salesman. And Treasury yields are a strong barometer for measuring success in this endeavor," Bessent said in a November 12 speech, noting borrowing costs were down across the curve. The Treasury did not respond to a request for comment for this story.
Such public messaging and behind-the-scenes interactions with investors have convinced many in the market the Trump administration is serious about keeping yields in check.
Some unwound bets over the summer that bond prices would fall after the Treasury proposed increasing purchases under an ongoing buyback program meant to improve market functioning, data shows.
The Treasury has also discreetly sought investors' opinions on major decisions, with one person familiar with the matter describing them as "proactive."
