- Finance Minister Scott Bessent denied this chaos on the bond market On the deposition of so -called basic purposes, Trump’s President forced Trump to bring his global trade tariffs into a break for 90 days. Rather, said Bessent, this was Trump’s plan all the time.
Finance Minister Scott Bessent denied on Wednesday that the bond market had forced the president’s hand to do so A 90-day break for most trading tariffs.
According to President Trump’s announcement, most tariffs that he intends for US trade partners Liquidity crisis And ask about whether government bonds lost Trump had brought her safe-haven status to the partial withdrawal.
“This was driven by the president’s strategy,” said the finance minister about Trump. “He and I had a long conversation on Sunday, and that was all the time about his strategy.”
Shales jumped after Trump announced the 90-day break, in which most countries (with the exception of China) will return to a property tax of 10% to imports.
Bessent had previously claimed that the bond market would calm down because high -lever bond trade handled, and he said that this type of deposits were normal and expected.
A selected group of hedge funds benefit well from the so -called Base tradingIn the strong borrowing, use tiny price differences between government bonds and futures in connection with these bonds. Usually this helps with storage Money markets hum. When the trade of 1 trillion US dollar relaxes, the market increases when the market is fighting to absorb a massive increase in supply with the treasure colleagues.
In interview with fox BusinessBessent said he often played a similar story during his career as a hedge fund.
“There are one of these fracture cramps that are currently going on in the markets,” he said. “It is on the market with a fixed income. There are some very large lever players who suffer losses that have to lose weight.”
Investors initially stacked in government bonds as a stock market market last week overthrown After President Donald Trump presented the determination “mutual tariffs“, Which came into force on Wednesday morning. In the early Monday, the return of the 10-year finance area fell under 4% for the first time since October, compared to around 4.8% in early January. Soon a sale with a fixed income and the 10-year return, which falls as a prize for bond-was on Wednesday morning. CNBC.
Besser, about concerns about the chaos in the fixed income, he said: “I think there is nothing systemic … I think that it is an unpleasant but normal breakdown that takes place on the bond market.”
Basic trade could have an impact on mortgages, car loans
Market observers have given many possible reasons for the confusing sale in bonds. As a trade policy uncertainty Reigns, investors could be desperately on the basis of simply keeping cash, similar At the beginning of the Covid 19 pandemic. The dealers have difficulties in prices how the Federal Reserve could react if a global trade war is feared stagflation– Replicing inflation paired with slow growth. It is possible for China and other foreign owners of US debts to flood the market with government bonds in order to take revenge against Trump’s tariffs.
The evaluation of all of these explanations is based on evidence of what is available in markets, Torsten Sløk, chief economist at Private Equity Giant Apollo, said Assets on Tuesday.
Nevertheless, he believes that the basic trade is a more likeable. In order for Hedge Fund to benefit considerably with the tiny arbitrage opportunity, you have to make a lot of loans. After Finance timesYou could take up to 50 to 100 times lever, which means that capital of $ 10 million could support $ 1 billion in financial purchases.
In times of extreme volatility in which hedge funds are susceptible to margin calls from Broker dealers, Sløk stated.
“It is very, very unusual for you to rise long -term interest rates when the stock market is falling,” he said. “That tells me that there were some desperate, forced sellers out there.”
This is a problem, said Sløk, because long-term returns, especially the 10-year-old, the basis for the basis for Mortgage interestCar loans and other types of common credit costs in the entire economy.
“You don’t want long -term interest rates to rise for non -economic reasons,” he said.
In order to prevent the Federal Reserve from buying 1.6 trillion dollars of government bonds in the early days of pandemic. The central bank also temporarily loosened the bank capital requirements introduced after the large financial crisis. Exception Treasuries and bank reserves from the so-called additional compatibility enabled lenders to buy more US debt.
While it insisted that the market is constant as a hedge fund risk, Bessent stated that he wanted to make this change permanently as part of a wider deregulation boost.
Update: This story was updated with a longer version of a quotation of the finance minister Scott Bessent after President Donald Trump announced a 90-day break about mutual tariffs.
This story was originally on Fortune.com
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