Donald Trump has finally blinked – but it’s not the stock markets that have forced him to act
Chalk this one up to the bond vigilantes.
This is the term used periodically to describe investors who push back against what are perceived to be irresponsible fiscal or monetary policies by selling government bonds, in the process pushing up yields, or implied borrowing costs.
Most of the focus on markets in the wake of Donald Trump’s imposition of tariffs on the rest of the world has, in the last week, been about the calamitous stock market reaction.
This was previously something that was assumed to have been taken seriously by Mr Trump.
During his first term in the White House, the president took the strength of US equities – in particular the S&P 500 – as being a barometer of the success, or otherwise, of his administration.
Donald Trump in the Oval Office today. Pic: Reuters
He had, over the last week, brushed off the sour equity market reaction to his tariffs as being akin to “medicine” that had to be taken to rectify what he perceived as harmful trade imbalances around the world.
But, as ever, it is the bond markets that have forced Mr Trump to blink – and, make no mistake, blink is what he has done.
To begin with, following the imposition of his tariffs – which were justified by some cockamamie mathematics and a spurious equation complete with Greek characters – bond prices rose as equities sold off.
That was not unusual: big sell-offs in equities, such as those seen in 1987 and in 2008, tend to be accompanied by rallies in bonds.
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What it’s like on the New York stock exchange floor
However, this week has seen something altogether different, with equities continuing to crater and US government bonds following suit.
At the beginning of the week yields on 10-year US Treasury bonds, traditionally seen as the safest of safe haven investments, were at 4.00%.
By early yesterday, they had risen to 4.51%, a huge jump by the standards of most investors. This is important.
The 10-year yield helps determine the interest rate on a whole clutch of financial products important to ordinary Americans, including mortgages, car loans and credit card borrowing.
By pushing up the yield on such a security, the bond investors were doing their stuff. It is not over-egging things to say that this was something akin to what Liz Truss and Kwasi Kwarteng experienced when the latter unveiled his mini-budget in October 2022.
And, as with the aftermath to that event, the violent reaction in bonds was caused by forced selling.
Now part of the selling appears to have been down to investors concluding, probably rightly, that Mr Trump’s tariffs would inject a big dose of inflation into the US economy – and inflation is the enemy of all bond investors.
Part of it appears to be due to the fact the US Treasury had on Tuesday suffered the weakest demand in nearly 18 months for $58bn worth of three-year bonds that it was trying to sell.
But in this particular case, the selling appears to have been primarily due to investors, chiefly hedge funds, unwinding what are known as ‘basis trades’ – in simple terms a strategy used to profit from the difference between a bond priced at, say, $100 and a futures contract for that same bond priced at, say, $105.
In ordinary circumstances, a hedge fund might buy the bond at $100 and sell the futures contract at $105 and make a profit when the two prices converge, in what is normally a relatively risk-free trade.
So risk-free, in fact, that hedge funds will ‘leverage’ – or borrow heavily – themselves to maximise potential returns.
The sudden and violent fall in US Treasuries this week reflected the fact that hedge funds were having to close those trades by selling Treasuries.
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Trump freezes tariffs at 10% – except China
Confronted by a potential hike in borrowing costs for millions of American homeowners, consumers and businesses, the White House has decided to rein back its tariffs, rightly so.
It was immediately rewarded by a spectacular rally in equity markets – the Nasdaq enjoyed its second-best-ever day, and its best since 2001, while the S&P 500 enjoyed its third-best session since World War Two – and by a rally in US Treasuries.
The influential Wall Street investment bank Goldman Sachs immediately trimmed its forecast of the probability of a US recession this year from 65% to 45%.
Of course, Mr Trump will not admit he has blinked, claiming last night some investors had got “a little bit yippy, a little bit afraid”.
And it is perfectly possible that markets face more volatile days ahead: the spectre of Mr Trump’s tariffs being reinstated 90 days from now still looms and a full-blown trade war between the US and China is now raging.
But Mr Trump has blinked. The bond vigilantes have brought him to heel. This president, who by his aggressive use of emergency executive powers had appeared to be more powerful than any of his predecessors, will never seem quite so powerful again.
Elon Musk’s social media post claiming Donald Trump is in files relating to the disgraced paedophile financier Jeffrey Epstein has been removed.
The tech billionaire made the allegation on X as he traded blows with the US president in a dramatic public row.
In the post, which now appears to have been deleted, Musk said: “@realDonaldTrump is in the Epstein files. That is the real reason they have not been made public.
“Mark this post for the future. The truth will come out.”
He gave no evidence for the claim, which was dismissed by the White House – with the post disappearing from his social media platform by Sunday.
Users clicking on the message – first posted on Thursday – were instead greeted with: “Hmm…this page doesn’t exist. Try searching for something else.”
Epstein killed himself in his jail cell in August 2019 while awaiting trial on charges of sex trafficking minors.
File pic: Reuters
Musk and Mr Trump’s relationship broke down publicly on Thursday, just days after the Tesla and SpaceX chief executive left his role as a special government employee.
In a fiery exchange, Musk posted a series of messages on X criticising the president’s signature tax and spending bill as a “big ugly spending bill”.
President Trump posted on Truth Social, saying Musk had been “wearing thin” and claimed he “asked him to leave” his government position – something Musk denied.
Read more:
Explosive row more terrifying than titillating
The big, beautiful bust-up everyone knew was coming
Musk then hit back with his claim about the US president appearing in the Epstein files.
Press secretary Karoline Leavitt dismissed the comment in a statement.
“This is an unfortunate episode from Elon, who is unhappy with the One Big Beautiful Bill because it does not include the policies he wanted,” she said.
“The president is focused on passing this historic piece of legislation and making our country great again.”
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The spat hit Tesla shares, which closed down 14.3% on Thursday, losing about $150bn (£111bn) in value.
In an interview with ABC News, Mr Trump was asked about reports a phone call was scheduled between him and Musk on Friday.
He reportedly said: “You mean the man who has lost his mind?”
Donald Trump has said Elon Musk has “lost his mind”, according to US media, as the White House reveals the president is not interested in speaking to him.
In a phone interview with ABC News, the US president was asked about reports that a phone call was scheduled on Friday between Musk and himself.
“You mean the man who has lost his mind?” he is said to have responded.
A White House official has said Mr Trump is not interested in talking to his former ally amid a bitter feud between the two, adding that no phone call is planned for the day.
It comes as a source familiar with the situation has told Sky News the president is considering selling his Tesla, in a further sign that no resolution to the explosive bust-up is in sight.
Mr Trump purchased a Tesla earlier this year, describing the company as Elon’s “baby”.
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‘Wheels come off’ Musk-Trump relationship
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The pair’s relationship broke down publicly on Thursday, just days after Tesla and SpaceX CEO Musk left his role as a special government employee.
In a fiery exchange, Musk posted a series of messages on X criticising the president’s signature tax bill as a “big ugly spending bill”.
President Trump posted on Truth Social that Musk had been “wearing thin” and claimed he “asked him to leave” his government position, something Musk denied.
Elon Musk then hit back, alleging the president “is in the Epstein files. That is the real reason they have not been made public.”
He gave no evidence for the claim, and it was dismissed by the White House.
In a statement, it called the bust-up an “unfortunate episode from Elon, who is unhappy with the One Big Beautiful Bill because it does not include the policies he wanted.”
Read more:
Musk says Trump appears in Epstein files as row explodes
The extraordinary spat minute-by-minute
The big, beautiful bust-up everyone knew was coming
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Trump hits out at Musk
The bill at the centre of the spat was passed by the House Republicans in May and has been described by the president as a “big, beautiful bill”.
The president said to reporters in the White House on Thursday that Musk “knew the inner workings of the bill better than anybody sitting here”.
“He had no problem with it. All of a sudden, he had a problem and he only developed the problem when he found out we’re going to have to cut the EV mandate.”
Musk then denied this, saying: “False, this bill was never shown to me even once and was passed in the dead of night so fast that almost no one in Congress could even read it!”
The spat hit Tesla shares, which closed down 14.3% on Thursday, losing about $150bn (£111bn) in value.
Musk also said SpaceX will begin decommissioning its Dragon spacecraft “immediately” after Mr Trump threatened to cancel government contracts with Musk’s businesses.
Hours after issuing his threat, however, Musk heeded advice from X users telling him to “cool down” and posted: “Ok, we won’t decommission Dragon”.
The row between two of the most powerful men in America comes a week after Musk left his position in the government, where he spearheaded a controversial cost-cutting department, DOGE – the Department of Government Efficiency.
They were once the best of friends, but last night that came to an end – and it all unfolded online as people across the world looked on… and retweeted.
Tension between Elon Musk and Donald Trump had been building for several days after the SpaceX billionaire criticised the US president’s signature tax bill.
While initially it remained cordial, the president suggested his former backer and adviser missed being in government and suffered from “Trump derangement syndrome”, leading to a sudden and dramatic deterioration in relations between the pair.
They have two of the largest platforms in the world, and last night, they turned them on each other. While much of Europe slept through it, here is every insult and barb as it happened… so far.
6.39pm: ‘Big ugly spending bill’
Musk tells Trump his “big ugly spending bill” will make the economic situation worse.
Five minutes later he retweets a video in which he says the bill will increase the US’s deficit to $2.5 trillion (£1.85 trn).
AT 6.48pm he shares a post about the bill’s popularity, simply saying: “Kill bill”.
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‘Wheels come off’ Musk-Trump relationship
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6.49pm: Trump’s ‘body double’
Earlier in the evening, Musk reshares a series of posts (dating back to 2012) from Trump’s X account, including ones saying deficits should not be allowed.
He then reshares a post of someone praising him, adding: “Where is the man who wrote these words? Was he replaced by a body double!?”
He then retweets a meme, making light of Trump’s plan, which links to a poll he had run the previous day.
7.23pm: Back to the bill
Musk starts tweeting about the “big ugly spending bill” again, saying members of Congress didn’t even have time to read it before it was passed.
He continues to tweet about this for most of the night, including accusing the government of “spending America into bankruptcy”.
7.30pm: Who is right?
Musk retweets a poll that shows 76% of 1.5 million voters think he is right in his spat with the president.
7.37pm: Elon was ‘wearing thin’
Trump shares a post on his Truth Social site that accuses Musk of going “crazy” after the president took away his EV mandate.
Trump says he asked Musk to leave his position within the White House. Pic: TruthSocial
Musk responds by sharing a number of former interviews, including a video from 2021 where he says the industry does not need EV tax credits.
Trump then shares a post in which he writes the “easiest way to save money in our Budget, Billions and Billions of Dollars, is to terminate Elon’s Governmental Subsidies and Contracts”.
8.10pm: The Epstein ‘bomb’
Arguably the largest moment in their fight – Musk accuses Trump of being in the Epstein files.
He gives no evidence for the claim. White House press secretary Karoline Leavitt dismisses the comment.
9.06pm: Musk ‘turning against me’
Trump says he doesn’t mind Musk turning against him, but adds that “he should have done so months ago”.
He then goes on to voice continued support for his bill, calling it “one of the greatest bills ever presented to Congress”.
Read more:
The big beautiful bust up that everyone knew was coming
In a post shared on his Truth Social account, the US president says he doesn’t mind Musk ‘turning against’ him. Pic: TruthSocial
9.09pm: Decommissioning Dragon
Following Trump’s statement about terminating his contracts, Musk tweets: “In light of the President’s statement about cancellation of my government contracts, @SpaceX will begin decommissioning its Dragon spacecraft immediately.”
Dragon is the only US spacecraft available to deliver crew to and from the International Space Station.
Two minutes later he retweets a post calling on Trump to be impeached, adding simply: “Yes.”
Musk and Trump in happier times, on the campaign trail in 2024. Pic: AP
9.29pm: Trump’s tariffs
Musk hits out at Trump’s tariffs, resharing a tweet from someone who called them “stupid”.
“The Trump tariffs will cause a recession in the second half of this year,” he adds.
For the rest of the evening, Musk reshares posts from other users, often adding a laughing face emoji, or the occasional comment, including the words: “If America goes broke, nothing else matters.”
2.20am: Musk says he won’t decommission spacecraft
Just after 2am, an account with a few hundred followers tweets Musk: “This is a shame this back and forth. You are both better than this. Cool off and take a step back for a couple days.”
In response, Musk agrees he won’t decommission the Dragon spacecraft.
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