Donald Trump’s U-turn on tariffs came after a sharp sell-off in US bond markets, writes John-Paul Ford Rojas.

The US President had seemed to shrug off big falls in Wall Street share prices.

But – as in past crises – a slump in bonds proved impossible to ignore.

WHAT ARE BOND MARKETS?

Governments borrow money by selling bonds to investors – small parcels of debt which pay interest, or yields, to these investors and can be traded between them.

When bond prices fall, yields rise.

Effectively, this means investors are demanding higher returns for lending to the government.

WHY ARE THEY SO VITAL?

The $29trillion market in US government bonds, or Treasuries, represents what is widely considered the world’s safest asset because they are guaranteed by the US government.

If yields on US bonds rise, it pushes up the cost of government borrowing.

And US bond yields are also a benchmark for borrowing rates across the US and the rest of the world.

That means when they go up, so do American mortgage rates and those charged to companies wanting to borrow money on financial markets.

The sheer scale of the market in Treasuries and their place as a cornerstone for the global financial system means that a collapse in their value would cause chaos.

James Carville, a former adviser to Bill Clinton, once said that if reincarnated: “I would like to come back as the bond market. You can intimidate everybody.”

WHAT WENT WRONG?

Yields had been stable when Mr Trump’s plan for steep tariffs for countries across the globe was unveiled last week.

But investors wobbled as he pressed ahead with the measures, unprecedented in decades – and notably tariffs of more than 100% on Chinese goods.

At one point, yields on ten-year US bonds were set for their biggest weekly jump in more than a decade, reaching a peak of 4.51% on Wednesday.

Yields on 30-year bonds climbed above 5% to their highest level since November 2023.

The chaos spread across the Atlantic to send UK 30-year bond yields to their highest level since 1998.

It drew comparisons with the fall-out from Liz Truss’s minibudget in 2022, when the Bank of England was forced to intervene to curb a sell-off in UK bonds known as gilts, after it threatened to destabilise pension funds.

HAVE BONDS RECOVERED?

The US President said: “The bond market now is beautiful.”

But yields remain above where they were before Mr Trump unleashed his ‘Liberation Day’ tariffs last week.