Don't forget Trump needs to refinance $7 trillion in next few months
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Equity Markets are falling as the Chinese Communist Party retaliated this morning with at 34% tariff on products imported from the United States into China.
The move saw the U.S. 10 year bond drop below 4% yield for the first time in the Trump presidency as investors ran for the perceived safety of U.S. Treasuries. As of publication the 10 year is at 3.88%, firmly cementing a 3 handle.
“China urges the United States to immediately cancel its unilateral tariff measures and resolve trade differences through consultation in an equal, respectful and mutually beneficial manner,” Xinhua cited the finance ministry, reported CNBC.
The ministry further criticized Washington’s decision to impose 34% of additional reciprocal levies on China — bringing total U.S. tariffs against the country to 54% — as “inconsistent with international trade rules” and “seriously” undermining Chinese interests, as well as endangering “global economic development and the stability of the production and supply chain.”
What the reader needs to understand is the dual nature of Trump's tariff policy.
The Obama administration, as well as the 'O'Biden' administration promoted a policy of 'running up' the national debt of the United States. Trump during his first term allowed the Covid response to also add massive amounts to what the United States borrowed from financial markets.
This debt was printed at very low rates, and very short term. The smart option would have been to extend the duration of the U.S. bond portfolio out to decades as rates were essentially at zero.
However, that was not done, and in the next few months the Treasury has to roll $7 trillion (with a T) of fixed income issuance.
The Trump tariffs have a dual use - to restructure the American economy in favor of main street, and to use the financial volatility created to lower borrowing costs for the Treasury as they refinance this huge amount of bonds.
Now you know.
