• Trump paused his newly launched tariffs after a sharp sell-off in US Treasury bonds signalled deep investor fears over inflation and rising government borrowing costs.
  • The sell-off was driven by “bond vigilantes” — investors who use market pressure to challenge government policies they see as fiscally reckless.
  • Experts warn that without serious deficit cuts, Trump’s economic agenda could trigger a debt crisis, with the bond market increasingly influencing US policy decisions.

NEW YORK, April 25 — US President Donald Trump remained firm on launching sweeping tariffs on April 9 despite a US$6 trillion (RM26 trillion) stock market drop and global opposition.

However, within hours of the tariffs taking effect, a sharp sell-off in the US Treasury bond market alarmed investors.

Bloomberg reported that bondholders feared the tariffs would fuel inflation and reduce foreign appetite for US assets, prompting mass sales to pressure the White House.

Just 13 hours after implementation, Trump paused the tariffs, conceding, “The bond market is very tricky... I was watching it.”

A plunge in bond prices raises yields, making it more expensive for governments to borrow and fund operations.

Sustained high yields threaten to derail Trump’s domestic priorities, especially his planned tax cuts, by inflating the budget deficit.

Bond yields on 30-year US debt surged past 5 per cent—a two-year high—before retreating to 4.8 per cent after the pause was announced.

Economist Ed Yardeni viewed this as another success for “bond vigilantes,” who use market pressure to protest unsound economic policies.

“The Bond Vigilantes have struck again,” wrote Yardeni, who first coined the term in 1983 to describe bond investors reining in reckless government spending.

These investors act collectively, without formal coordination, by dumping bonds when inflation or fiscal risks rise.

They influenced US policy in the 1990s, forcing President Bill Clinton to abandon a middle-class tax cut to reduce the deficit.

Swedish investors used the same tactic in 1994, refusing to buy government bonds unless spending was slashed.

After years of being sidelined, bond vigilantes returned in the wake of Covid-19 as global debt and inflation surged.

They played a key role in the 2022 collapse of UK Prime Minister Liz Truss’s government following her tax cut plans.

Even after the tariff pause, Trump’s policies continue to unnerve markets, raising fears of a “bond-market death spiral” and complicating his fiscal ambitions.