Friday Macro-Musings
Beautiful Bond Market: The Fallout from Liberation Day - Controlled Burn or Wildfire?!
"People were getting a little queasy." — Donald Trump, April 9, 2025, on watching the bond market
"Liberation Day" was supposed to be a bold geopolitical stroke. Instead, it's detonated across global markets—igniting volatility, fraying confidence, and putting U.S. economic credibility under a glaring spotlight.
Announced April 2nd with White House fanfare, the move has left asset classes reeling and foreign investors rethinking the very premise of "risk-free" U.S. assets.
Where We Stand
The market's verdict has been fast and brutal:
Equities are in correction territory—down more than 10% in less than two weeks
Volatility has exploded; credit spreads are gapping wider by the day
China, cast as the foil, isn't blinking—early signals suggest targeted economic retaliation
Consumer and corporate sentiment are both tanking
And most notably, Treasury yields have surged 40–50 bps, while the dollar has dropped ~4%
For international investors, it's a nightmare: U.S. Treasuries just delivered a two-punch hit—bond losses and currency devaluation.
The Real Crisis Is Still Ahead
This selloff is just the beginning. The fiscal calendar for 2025 is staggering:
The U.S. government has to refinance over $7 trillion in maturing debt this year, a majority of that in the 1st half
Congress just passed a budget blueprint unlocking $5+ trillion in tax cuts over the next decade
All while navigating an escalating tariff war with China and renewed global trade tension
Two Roads, Both Risky
There's no pain-free path forward. Policymakers are boxed in:
Path 1: The Controlled Burn
Use the tariff standoff as cover to engineer a soft landing—a mild recession to cool demand, stabilize yields, and avoid a bond market revolt. Still painful, but orderly.
Path 2: The Wildfire
Let markets dictate the terms. Think 5–6% yields on the long end, a deeper recession, and harsh repricing across risk assets. This scenario could derail the entire tax agenda.
Conclusion: A System Under Pressure
We are now witnessing an epic clash between expansionary fiscal policy and restrictive trade dynamics. Spoiler: they don't mix well.
Brace for turbulence. The macro chessboard has been flipped, and the next few moves will set the tone for global markets—and policy—for years to come.
Disclosure: The above post was created with assistance from Chat-GPT/Claude. Thoughts/opinions are mine/carbon intelligence; narrative eloquence is courtesy of Silicone (AI) intelligence.
