Posted on 04/08/2025 4:46:41 AM PDT by lasereye
A key Treasury auction this week could test one of the central planks of President Donald Trump's tariff strategy as markets reel amid the largest swings in Treasury yields in more than two decades.
President Trump has insisted that his tariff plans, which will impose sweeping levies on goods imported from virtually every nation in the world, paid for by American companies and consumers, will ultimately benefit the domestic economy with lower interest rates even they slow growth and stoke inflation along the way.
The Federal Reserve, meanwhile, wants to see more evidence of their impact on the world's biggest economy over the coming months before committing to a change in interest rates, which currently sit between 4.25% and 4.5%.
So far, Trump is finding some success in lowering market interest rates, which most investors view through the 10-year Treasury bond yield, although economists see that movement as a reflection of recession risk rather the tariff success.
Benchmark 10-year note yields started the year at around 4.577%, according to Tradeweb data, and fell below the 4% mark last week for the first time since Trump's election in November.
Movements this week, however, have been chaotic, with the paper reaching a multi-year low of 3.87% in overnight trading on Monday, before rising to 4.21% during the heaving volatility that dominated markets on Tuesday.
Those intra-day moves, in fact, were the largest in twenty-five years, according to Tradeweb data, and likely represent a host of markets risks heading into the April 9 start date the President has set for his 'Liberation Day' tariffs
That date, however, also corresponds with the sale of around $39 billion in 10-year notes, the middle of three coupon auctions that will raise around $119 billion for the Treasury this week.
The overlap is key because foreign buyers play a crucial role in these auctions buy holding down borrowing rates and assisting in the financing of the current government deficit, which topped $1.147 trillion in February and could rise to as high as $2 trillion by the end of the financial year in September.
Last month, indirect bidders, which are comprised mostly of foreign central banks, took down around 67.4% of the $39 billion 10-year auction, and scooped up around 71.5% of a $42 billion sale in February.
There are a host of reasons why foreign buyers are attracted to U.S. Treasury bonds, including the dollar's status as the world's reserve currency, the iron-clad safety of the bonds themselves and the role that U.S. interest rates play in calculating the value of financial assets.
But another determining factor is the role that global trade plays in the demand for U.S. Treasuries, and by extension how that helps keep borrowing costs low and allows the government to continue running budget deficits, while piling on new debt, each and every year.
Overseas companies selling goods into the U.S. are paid in U.S. dollars. They typically swap those dollars (first with their own bank, which then does the same with the central bank).
A good portion of those dollars find their way back into the U.S. in the form of investments, either in plants, manufacturing, research or marketing. But they also flow into Treasury bond auctions.
In fact, the biggest holders of U.S. Treasuries - China and Japan - have run the largest trade surpluses over the past two decades.
Now, however, with the Trump administration planning levies north of 50% on China, and threatening even steeper duties over the coming days, with tariffs set to kick-in on Europe, Canada and a host of trading partners on Wednesday, can those flows into the Treasury market continue?
If they can, Treasury bond prices are likely to increase, and Treasury bond yields (a loose proxy for government borrowing costs) are likely to decline (as they move in opposite directions).
If foreign buying of U.S. debt recedes, however, as a result of slowing trade flows, or a 'buyer's strike' from foreign central banks, the administration's goal of lowering market rates will find and immense challenge.
We borrowed very cheaply five years ago during COVID. Now we have re-finance at almost 10x the rate. This is going to hurt.
Maybe we should pay down the debt?
There is that indeterminative word again.
Everything written after that is useless...IMO.
A WAG with no foundation.
Who writes this crap? They have no editors?................
Yield curve will flatten/Invert cuz ChiComs are gonna dump Treasuries at a loss in a silly move to “punish” America.
Roll MAGA, roll!
Could is right
At the same time with the market downturn a lot of money is flowing into bonds/bills driving interest rates down in what would be a direct mirror of the concern
One of my big beliefs is that workplaces (of all types) have cut out the middle, and this has bad effects all around. Once upon a time, a newspaper had junior reporters, senior reporters, copy editors, and full editors. A story would filter up through that chain and one would expect it to be perfect before it was actually published. But, for cost-savings, they cut out the middle — the junior reporter (in a low-paying, dead-end job) types it, hopes that MS Word catches the worst mistakes, and publishes it.
That way, you get terribly written stuff actually being published. And the low-level reporters stay in their dead-end jobs because there is no ladder of promotions (the whole middle was let go for cost savings).
This is true in every industry. The people on the bottom do not move up anymore because Middle Management is gone. It was too expensive. So you get 100 or more low-level people in dead-end jobs reporting to one manager (who isn’t well-paid either) and if anyone wants a promotion, the odds are 99 to 1 against them. The American Dream? Mostly gone.
Yellen set the collapse-trap on the incoming Trump administration and the Republican controlled House and Senate by SHORT TERM FINANCING $9T in U.S. debt, all due (matured) by the end of the 2nd quarter.
Planned destruction of the U.S. and entire Western financial sphere so China will rule the world.
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