It’s All About the Bonds
This past week, President Trump hit the brakes on tariffs, putting a 90-day pause in place. The reason might surprise you: the bond market threw a bit of a tantrum.
So… why does that matter?
Let’s break it down.
Bonds 101: The Basics Behind the Buzz
When you buy a bond, you’re basically lending someone money — whether it’s the U.S. government, a corporation, or a local municipality. In return, they promise to pay you back with interest. Simple enough.
U.S. government bonds, in particular, have long been considered one of the safest places in the world to “park money” — especially when markets get shaky. Why? Because the U.S. economy has a strong track record of paying its bills. When the world gets nervous, people tend to flock to U.S. bonds like a financial security blanket.
Credit Matters – Even for Countries
Think of it like a credit score. When you and I have good credit, we get to borrow at lower interest rates. It’s easier and cheaper to do everything — from buying a house to financing a car.
The same goes for countries. The U.S. can afford to run large deficits because it typically pays very low interest on its debt. But if the market starts to question our ability to repay, rates go up. Suddenly, it costs a lot more to keep things running.
This Is Where It Gets Serious
If interest rates spike or the government can’t borrow more money (say, to raise the debt ceiling), then we’ll be spending more tax dollars just to pay interest. That means fewer resources for public services and more expensive loans for everyday people and businesses. In short: everything gets harder.
The Bond Market Has Power
Political strategist James Carville once joked: [1]
“I used to think that if there was reincarnation, I would like to come back as the bond market. You can intimidate everybody.”
He’s not wrong. The bond market can signal confidence — or the lack of it — in a way that gets noticed fast.
So what caused the recent sell-off? It’s unclear. It could be a genuine loss of confidence in U.S. fiscal policy, or it might be geopolitical — with China offloading U.S. bonds as a form of retaliation in the ongoing trade chess match. Either way, it’s got investors watching closely.
So, What Should Investors Do?
Despite the recent volatility, I still believe high-quality bonds play an important role in a portfolio — especially for those looking for predictable income.
Here’s the key:
When you buy a bond and hold it to maturity — and the issuer doesn’t default — you get your principal back, plus interest. Yes, the value of the bond might fluctuate along the way, but unless you’re selling early, those ups and downs are mostly noise.
We can’t control the headlines or the bond market’s mood swings. But we can stay focused, collect our interest payments, and stick with a long-term strategy.
If you have questions or concerns, please know we are here for you. Please feel free to reach out.
Stay the course,
Barbara
April 13, 2025
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