[Opinion] A Man Trying to Stand Against the Market

Is there anything that ‘Strongman’ Donald Trump, the President of the United States, fears right now? He is literally omnipotent. He treats the Canadian Prime Minister like a U.S. governor, demands Denmark hand over Greenland, and threatens or ignores universities and the media if he doesn’t like them.

What about ‘Tariff Man’ Trump? He is indiscriminately dropping tariff bombs on countries around the world. He has imposed a staggering 145% tariff bomb on China. Tariffs over 100% are not just bombs?they are nuclear bombs, effectively meaning a halt to trade.

There is one thing that made Trump hesitate: the market. More specifically, the bond market, and the group that moved it to stop Trump’s steps is the unfamiliar ‘Bond Vigilantes.’

President Trump, who was imposing reciprocal tariffs and item-specific tariffs almost daily, announced on the 9th (local time) that he would delay the reciprocal tariffs scheduled to be imposed on countries other than China for 90 days. Trump, who did not flinch even when the stock market plunged due to successive tariff announcements, had rather dismissed it as “a medicine that must be taken to correct harmful global trade imbalances.”

Why did Trump, who was like this, take a step back by pulling out the ‘90-day delay’ card? There is a hint in Trump’s words. On the 9th, he said, “The bond market is picky, and I was watching it, but last night I saw people getting nervous.” The U.S. Treasury yield fell from 4.25% on March 28 to 3.99% on April 4, then surged to 4.33% on the 9th and 4.42% on the 10th (bond prices plunged). This means someone was dumping U.S. Treasuries. This is where the Bond Vigilantes come in. Ed Yardeni, head of Yardeni Research who coined the term in 1983, said after Trump’s ‘90-day delay’ announcement, “The Bond Vigilantes have hit another home run.”

The Bond Vigilantes are short sellers of bonds. They are groups who, recognizing that U.S. Treasuries are no longer safe assets due to the U.S. fiscal deficit, Trump’s tax cuts, and reckless tariff policies, preemptively dumped U.S. Treasuries. They are forces that move according to market logic and do not have a physical entity. However, there is talk that one faction of this vigilante group is China. As of January this year, major countries’ holdings of U.S. Treasuries were Japan $1.0793 trillion, China $760.8 billion, and the UK $740.2 billion.

The Bond Vigilantes have already troubled several countries. During the Southern European debt crisis from 2010 to 2012, they dumped Greek, Italian, and Spanish government bonds, shaking those countries’ finances. At the end of 2022, they intervened in the Japanese bond market, causing interest rates to soar. Also, the ‘Truss moment’ that ousted UK Prime Minister Liz Truss just 44 days after her inauguration was the work of the Bond Vigilantes. Anticipating the scenario of ‘Truss’s massive tax cuts → revenue shortfall → increased government bond issuance,’ the Bond Vigilantes preemptively dumped UK government bonds.

In fact, since early this year, foreign media such as The Wall Street Journal have warned that the second Trump administration would face difficulties due to the Bond Vigilantes, predicting the ‘Trump moment.’ They accurately forecast the current situation. Although Trump has temporarily stepped back, he still tries to confront the market. Unlike Truss, can he win the fight against the Bond Vigilantes? It is an old basic rule of the capital market: “Do not fight the market.”