The Trump put was struck, but at what cost?

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We got the Trump put: The president finally caved after the yield on the 30-year bond hit 5%. As is the theme for this year, the bond market is driving everything, and equity markets are simply along for the ride. 

The bond market started to fall apart late Tuesday evening, and I admittedly got very worried about financial stability. In a two-hour span, the 30-year rose 21bps and hit 5%. 

In the early hours of Wednesday morning (for those on the East Coast), the wonkish parts of the monetary plumbing system also began to show signs of strain. For the first time this year outside of period-end dates — when we typically see funding strains — we started to see stress and fracturing. 

A simple way to look at this is the SOFR/IORB spread. For the first time since QT began (and outside of period-end window dressing moments), the spread turned positive. I’ll avoid going into too much detail here, but the point is this: The important parts of the bond/funding market started to show strain:

As I saw these developments unfold, it turns out I wasn’t the only one glued to the bond market — President Trump and Treasury Secretary Scott Bessent were, too. 

By Wednesday mid-day, the Trump administration relented and announced a 90-day pause on reciprocal tariffs on all countries except for China, which was slapped with additional fees. 

This was a welcome reprieve and quickly led to one of the largest single-day rallies of all time:

Now, however, the market has to digest where things stand. 

Anna Wong, chief US economist at Bloomberg, crunched the numbers to see where the impact on the economy nets out. It turns out the aggregate tariff impact on the economy as a whole is mostly the same; the risk just got transferred to China:

At time of writing, US equities have given back half of the gains from yesterday’s huge rally. 

What’s difficult about ascertaining what comes next? None of the economic data we’re receiving is all that useful. 

For example, this morning we saw that March marked the first negative month-over-month print on CPI inflation since 2020, and yet, bonds sold off. Something that would typically be very positive for bond markets sent the market in the opposite direction. 

Simply put, there are bigger forces at play right now. The fact that bonds couldn’t rally off an ice-cold CPI print tells you there’s some big issues in bond markets. Although Trump’s pivot resulted in a short-term bounce, the fundamental issues remain.

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