Here’s some irony for you. The implementation of tariffs sent rates through the roof. And the removal of tariffs will send rates through the roof!
I blogged several times about the additional irony of rates rising over the last few weeks after tariffs were announced. Normally, negative news (like tariffs), that portends a slower economy, sends rates sharply lower.
But the opposite happened this month, and many analysts have been speculating why.
- Jim Bianco, for example, insists it is because tariffs are inflationary, so bond investors demanded higher yields.
- Peter Schiff insists this is the beginning of the end for the dollar (because of our out-of-control debt and spending), and that is why investors are dumping our dollar-based bonds – resulting in higher yields. And
- Brent Johnson insists that yields rose because hedge funds (and other investors) have been forced to sell Treasury bonds to raise dollars to “pay off carry trades” (to cover losses), among other things.
I remain on Team-Brent Johnson because he reminds us that the exact same thing happened in September of 2008 and February of 2020, after which rates plummeted.
Here is a recent post on X from Johnson, and here is a long video in which Johnson makes his case more clearly with charts.
JCAL Thinks a Trade Deal With China Is Imminent
Jason Calacanis (VC and All In Podcast Host) posted this last week: It feels definite to me — no? Trump is going to end the trade war with China imminently… Calacanis then said Trump has to end the trade war, given the polls. And Calacanis is not alone, as many other analysts and pundits also think Trump and his team are frantically working on a trade deal with China, too.
Long story short: If a trade deal with China is announced, “the market will rip” (to quote Calacanis, who is referring to the stock market, not the bond market).
So, while the stock market will react positively to a trade deal with China, the bond market will not. This is because good economic news (like a trade deal with China) will send bond prices sharply down and interest rates sharply up, as bond investors demand higher yields whenever economic growth prospects improve.
So, while I still expect rates to eventually fall – just like we saw in 2008 and in 2020 – rates will likely hover in their current range until the carry trade investors are done dumping Treasuries (I have no clue how long that will take).
And if major trade deals surface (which would be very “good news” for the economy), we can expect to see rates spike up sharply (which would be very “bad news” for those of us in the real estate and mortgage industries).
