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.
It could be diplomatic dynamite.
The first meeting between a sitting US and Russian president in more than four years, following one of the bleakest periods in the history of their countries’ bilateral relations.
But a Putin–Trump summit does not necessarily mean there will be a ceasefire.
Ukraine war latest: Kremlin aide’s full statement on Trump-Putin talks
On the one hand, it could signal that a point of agreement has been reached and a face-to-face meeting is needed to seal the deal.
That has always been Russia’s stance. It’s consistently said it would only meet at a presidential level if there’s something to agree on.
On the other hand, there might not be anything substantive. It might just be for show.
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‘Good chance’ Trump will meet Putin soon
It might just be the latest attempt by the Kremlin to diffuse Donald Trump’s anger and dodge his deadline to end the war by Friday or face sanctions.
It would give Trump something that can be presented as progress, but in reality, it delivers anything but.
After all, there has certainly not been any sign that Moscow is willing to soften its negotiating position or step back from its goals on the battlefield.
Tellingly, perhaps, it’s this latter view which has been taken by some of the Russian press on Thursday.
Donald Trump and Vladimir Putin have not met face to face since the US president returned to the White House. File pic: Reuters
“Putin won” is the headline in Moskovsky Komsomolets regarding the Kremlin leader’s meeting with Witkoff.
The state-run tabloid quotes a political scientist, Marat Bashirov, who claims Putin “bought time” ahead of Friday’s deadline.
“It is noteworthy that in his rhetoric [on sanctions] Trump did not mention Russia at all,” the paper notes.
Komsomolskaya Pravda is similarly dismissive.
“Donald Trump has two simple interests in connection with Ukraine: to earn money for America, and political whistles and the Nobel Peace Prize for himself,” it says.
“Russia has its own interests,” it adds, “securing them is what Vladimir Putin will seek at a meeting with Trump.”
At this stage, the most likely location is the United Arab Emirates. Putin met the country’s president in the Kremlin today, and afterwards said it would be a “suitable location”. It felt like a strong hint.
And the UAE certainly makes sense.
It’s played mediator for a number of the prisoner swaps between Russia and Ukraine; it has good relations with the US (and was one of Trump’s stops on his recent Middle East tour); and most importantly for Moscow, it’s not a member of the International Criminal Court. So Putin doesn’t have to worry about being arrested.
But if NBC’s reports are correct, that a Putin-Trump summit is conditional on the Russian president meeting with Ukrainian leader Volodymyr Zelenskyy, then the summit may not happen at all.
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Until now, Putin has refused to meet Zelenskyy, despite numerous demands from Kyiv, because he views him as illegitimate.
The Kremlin said the prospect of a trilateral meeting between the leaders was mentioned by Witkoff on Wednesday, but the proposal was left “completely without comment” by Russia.
GPT-5, the long-awaited upgrade to the ChatGPT AI chatbot, has been released by its maker OpenAI.
It has been one of the most highly anticipated launches in Silicon Valley after OpenAI’s first offering ChatGPT – powered by its GPT-3 model – kick-started the current AI boom in late 2022.
“GPT-3 sort of felt like talking to a high school student,” said Sam Altman, OpenAI’s chief executive.
“GPT-4, maybe it was like talking to a college student. But with GPT-5, now it’s like talking to an expert, a PhD-level expert in anything, any area you need, on demand.”
At the launch event, OpenAI claimed the new chatbot, which will be released to all ChatGPT users on Thursday, was more than a simple upgrade to its previous offerings.
According to OpenAI, the new model exceeds the chatbot competition from the likes of Google, X and Antropic on “benchmarks” – standardised tests used to rank models.
OpenAI claims it has been designed to be easier and more natural to communicate with, better at writing prose and advanced computer code, solving academic questions from mathematics to law, assisting with healthcare-related questions, as well as being safer than its predecessors.
“It’s an incredible superpower on demand,” claimed Mr Altman.
GPT-5. Pic: OpenAI
The model is also more intelligent in how it uses its own brain power – and therefore an expensive computing resource – according to OpenAI.
It is a hybrid of previous chatbots and slower, more computing-intensive “reasoning” models like OpenAI’s Deep Research.
Based on a user’s request, the model will decide how much “thinking” is required before answering, rather than requiring the user to switch between different models.
GPT-5. Pic: OpenAI
Although AI enthusiasts who had been expecting GPT-5 to represent “artificial general intelligence [AGI]” will be disappointed.
Despite this being OpenAI’s stated goal, Mr Altman billed GPT-5 as a “major upgrade” to GPT-4 and a “significant step along the path to AGI”.
But they’re clearly not there yet.
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July: ‘ChatGPT is the partner I always wanted’
A real test of GPT-5 will be whether it sells.
OpenAI is projected to spend $8bn (£6bn) this year, on top of $5bn (£3.7bn) last year, and while it is expected to make a profit this year, the business case for increasingly powerful AI models is still not clear to many investors.
Given a single training run for GPT-5 is rumoured to have cost $500m (£373m), there will be an expectation the new model is significantly more useful to business users.
Despite a very slick demonstration of its coding skills at the launch presentation, where it built an online language learning game in seconds, GPT-5 will have to prove its worth for professional coding.
Many in the tech industry prefer Anthropic AI’s Claude model to write code. OpenAI and its investors will be hoping GPT-5 changes that.
AI experts will also be testing GPT-5’s tendency to “hallucinate”, an issue OpenAI claims to have improved with GPT-5.
But erroneous or bizarre answers are a problem that dogs all large generative AI models.
“Shiny things are always fun to play with, and I fully expect GPT-5 to be the shiniest so far,” said Gary Marcus, a cognitive scientist at New York University and AI commentator.
“But that doesn’t mean that it is a critical step on the optimal path to AI that we can trust,” Mr Marcus added in a post.
Dean Cain has been branded the “worst superman ever” as he announced he will join the US Immigration and Customs Enforcement (ICE) “ASAP”.
The 59-year-old, who was cast as Superman in the TV series Lois & Clark: The New Adventures of Superman, announced he had joined the team amid the federal agency’s unprecedented immigration raids.
He told Fox News on Wednesday his recruitment video on Instagram had gone viral and since then, “I have spoken with some of the officials over at ICE and I will be sworn in as an ICE agent ASAP”.
“You can defend your homeland and get great benefits,” he said in the Instagram post where he appealed for his followers to join ICE.
Speaking with the Superman theme song in the background, he said “hundreds of thousands of criminals” had been arrested since US President Donald Trump took office.
He then told his followers they would get a series of benefits if they joined ICE, including a $50,000 (£37,407) signing bonus and student loan repayment.
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“If you want to help save America ICE is arresting the worst of the worst and removing them from America’s streets,” he said, before adding: “I voted for that.”
ICE agents are under pressure from the White House to boost their deportation numbers in line with Mr Trump’s campaign promise to crack down on illegal immigration.
Cain’s post on Instagram received some backlash, with one user commenting: “Worst superman ever”.
Another said: “Shame on you Dean – that’s the most un-Superman thing you could possibly advocate.”
One fan turned against him and said: “Until I saw this I was such a fan. What a sad human being you must be.”
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