Is the Bond Market Influencing the Trade War?

April 10, 2025

Thursday, April 10, 2025

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Federal Policy

Is the Bond Market Influencing the Trade War?

Wednesday was the definition of a rollercoaster trading day. Early morning trading continued the selloff that had been hurting stock values across almost every industry. One of the most concerning aspects of the down market was that it was dragging bonds down with it.

Usually, when stocks fall, investors seek safety in government bonds. Not so this time. But around mid-day, President Trump announced that he was pausing reciprocal tariffs for all countries that had indicated a willingness to negotiate (notably excluding China). There is speculation that one reason for Trump’s about-face on the new tariffs was the effect they were having on bond rates. A new term has emerged to describe what may be a concerted effort to influence trade policy through bond prices: bond vigilantes.

The Trump administration had already stated that their focus was on bringing down the 10-year Treasury yield — not the federal funds rate controlled by the Federal Reserve. This was welcome news for the commercial real estate industry, since the 10-year Treasury is more closely tied to commercial mortgage rates than the fed funds rate. The 10-year yield is influenced by the global market for U.S. Treasury bonds, opening up the possibility that traders could move enough money to sway American foreign policy. Trump even admitted that bonds factored into his decision. “No, I was watching the bond market. The bond market is very tricky. I was watching it, but if you look at it now, it’s beautiful,” he said in an interview.

The interplay between bond traders and Trump’s trade war puts the real estate industry in a precarious position. On one hand, anyone in real estate is hoping bond yields will fall and bring mortgage rate relief with them. On the other hand, higher bond yields might be exactly what influences Trump’s trade policy — and could help stabilize the falling share prices of many public real estate companies.

Another factor to consider is how these unprecedented swings in bond rates are drying up the market for corporate bonds. Why would an investor commit to any long-term bond when prices are changing so rapidly? Real estate bonds have often been seen as a safe haven for large investors, but right now many seem to prefer assets less exposed to politics and investor activism — like gold or good old-fashioned cash. 

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