Opinion
Mint Quick Edit | Trump versus the mighty US bond market
Summary
- The next US president seems undaunted by how the bond market may react to inflationary policies (recall Carville?). But the rest of us, especially Indian equity investors, had better watch out.
Former US president Bill Clinton’s aide James Carville once said, “I used to think that if there was reincarnation, I wanted to come back as the president or the Pope or as a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody."
Whether that includes Donald Trump, who doesn’t appear to fear a bond-market rout, is perplexingly unclear.
Yields on US 10-year Treasury bonds seem headed for 5% on the back of a price-reducing (and thus yield-raising) sell-off in response to the next president’s policy ideas that may prove inflationary.
Also Read: Odd response: Why did US bond yields rise after the Fed’s interest rate cut?
Wage-inflating labour shortfalls and tariff-led price mark-ups are worries.
If tax cuts widen the fiscal gap, it’ll only worsen price instability.
In the International Monetary Fund’s analysis, although tariffs, tax relief and deregulation could boost the US economy in the short-term, an inflationary boom could be followed by a potential bust, and the global role of US Treasury bonds as “safe assets" might weaken.
Also Read: The good, the bad and the uncertainty of the US economy under a Trump presidency
Meanwhile, though, high bond yields would make credit costlier globally and keep foreign investors off Indian assets. That’s reason enough for us to watch—if not fear—the mighty US bond market.
