Trump's Tariffs Now A Financial Boon, Shielding US From Global Bond Market Sell-Off, Say Analysts: 'Forget The Economic Justification...'

President Donald Trump’s controversial tariffs have emerged as a saving grace for the U.S. in the recent global bond market turmoil.

Global Government Debt Surges Past $97 Trillion Mark

The tariffs, initially a cause of concern for financial markets, are now being viewed as a crucial element of Washington’s financial stability. This shift in perspective has helped the U.S. avoid the worst of the recent government bond market sell-off, reported The Washington Post.

As government debt continues to rise in developed economies like the U.K., France, and Japan, investors are seeking higher yields on long-term bonds issued by these countries. Global government debt has surged past $97 trillion—double its 2010 level—driven by pandemic-related spending and recovery measures, outpacing corporate and household borrowing, according to the Institute of International Finance.

Despite the U.S. public debt reaching a record $30 trillion, investors have remained relatively optimistic about U.S. treasuries. The yield on the 30-year Treasury bond briefly neared 5% this week but has risen far less than shorter-term government securities. A key factor is the Congressional Budget Office's forecast that tariffs will generate about $3.3 trillion over the next decade, helping ease worries about an otherwise fragile fiscal outlook.

Tariffs Seen As Key To Easing US Fiscal Concerns

The tariffs have managed to reassure investors, with the U.S. economy’s robust performance and the potential for a Federal Reserve interest rate cut further bolstering the appeal of U.S. treasuries.

Priya Misra, a bond portfolio manager at J.P. Morgan Asset Management, stated, "The U.S. is outperforming because actually our [budget] deficit is marginally better with tariffs. Forget the economic justification of tariffs. It is raising a lot of revenue.”

Moreover, investors seem assured that the president would invoke alternative legal powers to reinstate any overturned tariffs, ensuring that revenue from import duties continues to flow into government coffers, opined Evan Brown, from UBS Asset Management

Rising Yields Threaten High P/E stocks Like Tesla, Nvidia

The rising yields have been a cause for concern in the equities market. Gary Black, Managing Director of The Future Fund LLC, warned that high P/E stocks like Tesla Inc. TSLA, NVIDIA Corporation NVDA, and Palantir Technologies Inc. PLTR could be significantly impacted by the rise in 10-year Treasury yields.

Furthermore, Deutsche Bank analysts have raised concerns about the market cap of NVIDIA Corporation NVDA, suggesting that it may be contributing to a potential bubble in the U.S. equities market.

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