The similarities between President Trump and Britain's shortest serving prime minister, Liz Truss, are growing Starker. Truss caused market disruption in 2022 after proposing a sweep tax cut that he proposed to pay with large-scale government borrowings. Truss was ultimately doomed by fear of a credit crisis after British government bond yields skyrocketed.
Now, the yields for the US Treasury are beginning to rise. On Wednesday, hours after Trump's latest tariffs came into effect, U.S. Treasury yields for 2010 rose from around 3.9% a few days ago, including taxes of more than 100% in China. The yield on the bond over 30 years was traded shortly, exceeding 5%.
Yields are generally still lower than when Trump was inaugurated, but the Treasury's sustained sale erases the key differences in global market responses to Trump's tariffs and Truss' tax cuts. The bonds actually drifted, even as the stock market plunged and the dollar weakened shortly after the president's tariff announcement. It was a welcome island of stability and reminded me of the traditional status of the American bond market as a heaven for investors.
According to some analysts, its safe haven status may now be falling apart. To the extreme, it could put pressure on intervention in the Federal Reserve. This is what the UK Bank did in 2022 to expand the UK bond market.
In the UK, these dramatic events forced Ms Truss to cancel the proposed tax cuts, calming the market turmoil. However, Ms Truss' credibility was destroyed and she was forced to resign after 44 days. In contrast, Trump has shown no indication that he plans to reverse tariffs, but for now there appears to be little political lever to force his hand.
