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Not even a full week had passed since the so-called “Liberation Day” when Donald Trump hit pause, delaying tariffs for 90 days on countries that chose to negotiate rather than strike back. Just on Monday, Trump brushed off all the rumors about this move, but they turned out to be true, pushing the S&P 500 up.
Why the sudden change of heart?
There could be several possible reasons. The first — and perhaps the most likely — is that Trump never intended to impose strict measures. Hasty calculations of reciprocal tariffs suggest that this was more of a bluff. But he decided to go all in once he realized that other countries were not lining up to make concessions.
Another reason, which has not received as much attention, could be the recent spike in volatility in the U.S. Treasury market. In case you missed it, the yield on 10-year Treasuries rose more than 5% last week, triggered by a wave of large-scale selling by major holders that began on Tuesday by a curious coincidence.
At first, China, which held some $760.8 billion in U.S. Treasuries in January, was singled out. However, new reports suggest that the real player was Japan — the largest foreign holder, with about $1.08 trillion — probably to counter Trump’s actions and gain leverage ahead of upcoming negotiations.
Keep in mind that the Treasury market is key to financing the U.S. budget deficit and refinancing debt. When yields rise, so does the cost of new borrowing. That means that federal debt service — already approaching $1 trillion a year, more than the defense budget — could become even more expensive.
The third theory drifts a bit into conspiracy territory, suggesting that the pressure came from corporate heavyweights after their stock prices plummeted. Supporters of this point to Trump’s comments about “helping his friends make a lot of money” after the dust settled. Perhaps it wasn’t just bluster.
In reality, it was probably a mix of all three factors. But does that mean the tariff drama is over, and markets can relax? Not quite. If there’s one thing we’ve learned, anything can happen with Trump. One thing’s sure: the markets won’t be settling down anytime soon. It’s no surprise that XAUUSD is still in an uptrend.
