Trump, Bond Market, and Uncertainty in US Economy

Saba Yemen

5 hours ago

Sana'a – Saba:
Treasury bonds pose a serious challenge to the US economy, given the increasing deficit ratios in the face of public debt, this can be clearly seen in the fluctuations in Treasury bond prices there.
Uncertainty
Here, we must ask what are the reasons behind the fluctuations in Treasury bond prices that the United States is experiencing? Journalist and economic analyst Rashid Al-Haddad told the Yemeni News Agency (Saba): The most important reasons behind the fluctuations in the US Treasury bond market are the loss of confidence of investors in US bonds in the stability of economic policies under US President Donald Trump. Trump has taken a number of economic measures, most notably the tariff war, which led to the collapse of US stock markets and also affected the bond market, due to its negative repercussions on US and global markets. This resulted in widespread trade disruptions and raised investor fears of a return to the Great Recession in America, especially since the effects of the tariffs were evident on American consumers, but, contrary to expectations, they did not have a positive impact on the performance of the US economy.
In addition to Trump's move to lower interest rates to less than 5%, another factor is the anticipation of American and foreign investors, whether countries or companies. Approximately $11 trillion, representing one-third of the US public debt, is due to mature in the coming period, amid the uncertainty facing the US economy under Trump.
Maturity Debt
A report by the US Treasury Department showed that the national debt has exceeded $36.22 trillion, and that the government needs to refinance to repay $11 trillion in maturing debt, nearly a third of the total, over the next 12 months. Here's the question: How challenging is this given the volatility in bond markets and rising yields?
Journalist Al-Haddad explains: "So far, indications indicate that the Trump administration is unable to repay, and the options available to address this are economically costly. The Trump administration may resort to repurchasing maturing bonds at higher interest rates or negotiating with bondholders."
Banks
Central banks' holdings of US Treasury bonds decreased by $17 billion last week, and by $48 billion since late March 2025. What are the reasons and implications behind this?
Al-Haddad believes that "the decline in banks' holdings stems from concerns over rising political and financial risks, which reinforces the feeling that US bonds are no longer the safe haven for investment they were in years, and that risk levels have become high. Consequently, banks are turning to diversifying their sovereign investments or increasing their gold reserves as a safe haven."
Auction
The $16 billion auction of 20-year US Treasury bonds with a yield of 5% is experiencing weak demand, reflecting a reluctance by foreign investors to purchase US bonds. What could this mean if it continues?
Rasheed says the Trump administration may resort to this, especially since the outstanding bonds are decades old, and most of them were sold to raise funds for US-led wars in Iraq and Afghanistan, for example.
Currencies
The decline in the value of the dollar index against a basket of major currencies and the rise in US debt to approximately $37 trillion are putting upward pressure on interest rates on US bonds.
Al-Haddad says that the decline in demand for the dollar ahead of any interest rate cut indicates a loss of investor confidence in the dollar and a shift towards gold. This also confirms that the risks of the repercussions of the interest rate cut will also be significant for the dollar price.
In addition, Saudi Arabia increased its holdings of US Treasury bonds to $2.2 billion in April 2025.
Al-Haddad believes this percentage is small: Saudi Arabia has recently reduced its investment in US bonds, unlike in previous years, and even if Saudi Arabia's new investments in bonds are small compared to other countries.
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