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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Dear Bond Vigilantes,
As a great man once said: I owe you an apology. I wasn’t really familiar with your game.
Things were looking very dicey for Americans, after the White House introduced an aggressive and bafflingly calculated set of tariffs on basically all of its trading partners. Stocks were down, Treasury yields were up (prices down), and the dollar was down, too. None of that is good!
And last night, long-dated Treasuries started selling off. Hard. By the morning, market participants were talking about emergency Fed interventions. And while a cut seemed like a stretch, investors were looking out for pain in funding markets, which may have required liquidity interventions.
But you know all of this, my wise newfound friends. You were there! I think. Probably.
In the past, I’ve expressed scepticism that government spending and/or social programs would really unleash your full power against the US state. First, the name makes you sound like a bogeyman. Second, it’s a lot easier to threaten countries without reserve currency status. Third, the famous James Carville quote about how you scare everybody has become annoying. And finally, policymakers shouldn’t be too responsive to threats about you, because they’re often used to stop government investment and spending, which aren’t inherently bad things!
Things have changed. Back then I didn’t know that the US executive branch would be willing to try an American version of Brexit, but even dumber and more harmful to the global economy. If anyone could achieve that, it would be America, but I’ll admit I lacked the necessary policy imagination to see it.
My dear vigilantes, you knew that Americans are not actually ready for factory life, despite the arguments of hundreds of sad and embittered young men online. And you, my dear bond vigilantes, stepped into the breach between the US and its Big Beautiful Leap Onshoreward.
Do you really exist? Are you really a shadowy cabal of global investors that punishes governments for bad ideas? Well, that’s unclear.
But President Donald Trump told the press today he was watching the bond market last night, much like the rest of us, after saying he had noticed that people “were getting yippy.”
So, as far as we’re concerned, you contributed to his decision to follow through with the 90-day pause that was mysteriously first reported on Monday.
This isn’t to say that the US is saved, because LOL, it is not. Who knows what fresh horrors await tomorrow and next week. That may be why Treasuries are still selling off, though the dollar seems to have at least halted its decline.
There are still questions. For example: Is Europe included on the roster of non-retaliating economies, even though it approved additional tariffs just this morning? Why did it briefly sound like we put a 35% tariff on Mexico and Canada, and a 10% tariff on USMCA-compliant goods? CNBC is reporting that we haven’t. Still confusing.
For now, though, it feels like a fast-moving disaster has become a slow-moving disaster. Maybe we can get some sleep and go outside with our kids this evening. And if you listen to the President’s comments, it sounds like you’re part of the reason for that.
With sincere thanks,
FT Alphaville
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