What are the ties and why have they scared Donald Trump? | Ties
Donald Trump’s tariff war frightened the equity markets and intensified the fears of a recession in the United States and Europe. But neither factors seem to have been what motivated the sudden face of the president this week, when he He paused most of his border fees of the “Liberation Day” for 90 days.
What is a bond?
An obligation is a certificate that confirms that its owner has given money to a specified borrower who will be refunded at a fixed date, generally with a fixed interest rate. Known as fixed income securities, they appeal to investors who want stable returns.
The companies issue bonds to borrow money and so also governments – to pay investments and other expenses. The UK government bonds are called flakes, while the United States government securities are known as a treasure, traditionally seen as a safe refuge because they are guaranteed by the largest economy in the world. They are issued with different maturity dates when they must be paid in full, with two -year, 10 -year and 30 -year -old bonds.
How are they exchanged?
The bonds can be purchased and sold as actions on a secondary market – an exchange – but, unlike actions, they offer guaranteed annual returns. The bond market is the greatest exchange of titles in the world, for a value of almost $ 130 TN (£ 99 TN), with the US market that represents about 40% of debt worldwide.
Government obligations are generally sold to financial institutions in auctions and can therefore be resold on the secondary market for more or less than their nominal value.
What is a bond performance?
Bond returns represent the amount of money that an investor receives to have the debt in percentage of his current price. When the price of an obligation decreases, returns increase. The performance is commonly defined as an interest rate or the cost of the loan to an issuer.
Increased returns suggest that the decrease in decrease in having the debt between investors, which can be influenced by a series of factors, including the ability of an issuer to repay. For governments, this focuses on the prospects for the economy and finances of the country.
Inflation expectations They also have a significant impact. This is because inflation reduces the future value of the money received to own the debt. This means that investors may require a higher performance to compensate for the risk.
And since other financial products, such as mortgages, have a price outside the surrender, there is a changing room in the largest economy.
What did Trump rates do to ties?
Initially the President of the United States considered his tariff plan to work, having anticipated that the equity markets would react badly to the rates and the dollar would fall.
However, Trump was sure that the bond market would remain calm because he had promised to pay for tax cuts later during the year with revenues from the rates, which means that the United States government could limit the number of obligations that have issued it, maintaining the demand and demand in synchronization and putting a limit of government debt levels.
However, the tariff war pushed the fears of a recession in the United States, making it risky to lend to the United States. It is feared that the United States is blocked in a titanic struggle with China, which damages both economies for a long period and drags global growth.
In response, investors sold US bonds in enormous quantities, lowering their value and higher performance and making the future public debt more expensive to issue.
Where did this Trump left?
At the White House was the fear that the payment of a higher interest rate on national debt would increase the government’s annual expenditure deficit, adding pressure to an already elongated budget and increasing the overall debt mountain.
Worse still, the $ 29 TN market in the United States securities is the foundation of the global financial system and the heavy sale could press pressure on other parts of the financial system, forcing banks or other institutions to default, causing a wider financial crisis.
Did the situation loose up?
After the President of the United States said he would suspend punitive rates on all countries other than China for 90 days, the bonds markets began to settle. However, the returns remain high, with the actual interest rate on a treasure obligation at 10 years at 4.52% on Friday compared to 3.99% on April 4th.
Is this the time of Trump by Liz Truss?
The United Kingdom Prime Minister was demolished by his scaramuccia with the market markets, which Considered his reckless mini-budget. That verdict sent the yield to the golden brown of the United Kingdom while the values of the bonds decreased as a stone, which forced the mortgage companies to increase loan rates and destroyed Truss’ premiership.
While Trump has more resources, he faces similar concerns for the effects of Spillover. If its policies increase inflation as expected, with some analysts who provide a rate of 4.5% by next year, this could alienate the vote of republican core that led him to promise to cut the increased food prices. The voters could see rates as a mortgage tax if the banks begin to charge more for domestic loans on the back of higher returns, giving a popularity with its base.
