Amid several theories on why President Donald Trump paused the tariffs hours after they went into effect, experts have been pushing the bond market turmoil as the major contributor to the decision.
What Happened: After the 10-year Treasury yields rose 34 bps from below 4.0% last week to nearly 4.34% on Wednesday, experts are pegging Trump’s reaction to pause the tariffs on the spike in yields.
Ed Yardeni from Yardeni Research said, “Bond vigilantes hit another homerun.” A bond vigilante is a bond market investor who protests against monetary or fiscal policies considered inflationary by selling bonds, thus increasing yields.
Yardeni resurfaced his 1983 quote after the yield spike and said, “Bond investors are the economy’s bond vigilantes. … So if the fiscal and monetary authorities won't regulate the economy, the bond investors will. The economy will be run by vigilantes in the credit markets."
Meanwhile, economist Craig Shapiro said, “China, just by threatening to sell USTs, basically blew up the bond market and forced the admin to backtrack.”
However, Trump, in his Truth Social post, said he decided to pause the tariffs based on the negotiation attempts by 75 countries without any retaliation. But Shapiro added in his tweet, “He didn’t admit the bond market had anything to do with this. He said he’s been thinking about it for days. Whatever. It was a flawed rollout.”
Gary Black, the managing partner, the Future Fund LLC said, “In the end, Trump's stunning about face on tariffs was driven by chaos in the bond market including soaring 10yr and 30yr treasury yields; the prospect of huge Republican losses in next year's midterm elections; and pressure by Trump's billionaire supporters (Dimon, Ackman) who convinced him his tariff plan could cause a severe recession.”
According to Spencer Hakimian, the founder of Tolou Capital Management, a Japanese hedge fund that was 60 times levered to the U.S. 10-year Treasury bond was responsible for the spike in yields, which indirectly influenced the decision for a tariff pause.
Why It Matters: President Trump levied reciprocal tariffs on U.S. trading partners last week on Wednesday, which followed a heavy selloff in the market, pushing the Nasdaq into a bear market, whereas the S&P 500 and the Dow Jones were nearing bear territory.
The Trump administration claimed that he was thinking about a tariff pause since Sunday, as Treasury Secretary Scott Bessent told reporter on Wednesday that "He and I had a long talk.” He added, "This was his strategy all along."
Before announcing the pause in a Truth Social post around 1:18 p.m. ET, Trump posted the same morning that “THIS IS A GREAT TIME TO BUY!!! DJT” Trump transferred his entire stake in Truth Social owner, Trump Media & Technology Group Corp. DJT to a revocable trust ahead of his inauguration.
Price Action: The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, surged on Wednesday. SPY rose by 10.50%, whereas QQQ advanced 12.00%, according to Benzinga Pro data.
After a period of decline, the Nasdaq 100 climbed out of bear market territory, although it remained 13.85% below its prior peak of 22,222.61 points. The S&P 500 was still in a correction, sitting 11.23% lower than its record high of 6,147.43 points, while the Dow Jones was 9.91% down from its 52-week high of 45,073.63 points.
On Thursday, the futures of Dow were down by 0.49%, and the futures of S&P 500 and the Nasdaq 100 index were 0.78% and 1.21% lower, respectively.
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