James Carville, an adviser to Bill Clinton, famously once said he’d like to be reincarnated as the bond market – because “you can intimidate everybody”.
It’s a lesson the current US President learned the hard way last week.
Seven torrid days after “liberation day”, President Trump was forced to pause the introduction of his sweeping “reciprocal” tariffs on all countries bar China not by the $6.6 trillion collapse in the value of American companies in 48 hours but by the steepest fall in US government bond prices in 40 years.
Donald Trump, like Liz Truss in the aftermath of her disastrous mini-budget in 2022, was bloodied by a bond market that cannot be ignored.
Falling US Treasury prices drive up the cost of borrowing for the US government, putting greater pressure on public finances and American taxpayers to service those debts.
US government bonds, known as Treasuries, are effectively IOUs issued by the American government in exchange for a loan. They pay a fixed amount of interest and, after a set period of time, the loan is paid back to the bondholder.
They are also incredibly important, not only for governments around the world, but for the rest of us too. Treasuries set the tone for bonds everywhere, including those issued by the UK government, known as gilts.
They influence global borrowing costs for governments, companies and consumers. And dearer borrowing threatens to trigger a global recession.
They also play a central role in the portfolios of many savers, either directly because they are generally regarded as the safest of investments, or indirectly because of their sway over other assets.
Because of this, and the turmoil in the equity markets prompted by President Trump’s punitive tariffs, this past fortnight has been a testing one for portfolios, many of which will have lost more than 10% of their value in as many days.
A couple of things to keep in mind. Firstly, saving should be for the long-term. That’s the best way to smooth out any near-term volatility, those shocks that are impossible to predict, but which are nevertheless inevitable from time to time.
Secondly, talk to your adviser about ways to protect your savings in these uncertain times and to grow them back.
For example, cash accounts can lock in interest rates north of 4% at the moment, insulating against further market falls, while structured products can give exposure to any recovery by stock markets.
Markets don’t have to be intimidating, with the right help along the way.
As always, thanks for listening.
Martin.
Martin Brown, managing partner at Continuum, was talking to Gary Parkinson, former financial journalist at The Times and BBC.
Gary Parkinson
Media Relations
T: 0345 643 0770 M: 07756 668500
