Yields in the US Treasury market have been flying higher since the Iranian conflict began this month. Despite investors seeking shelter in the greenback during the war in Iran, they have refrained from diving into the pool of government bonds. Reasons may vary, whether a preference for a liquid asset or an acceleration of issuance, but the latest trajectory of interest rates has not been good. To kick off the trading week, long-term Treasury securities cooled off and took a bite of the Trump TACO. This has been a regular pattern in the US bond market over the past year, and it could signal the next move in the administration’s decision-making.
Trump TACO Menu
“Trump Always Chickens Out” is a term that has gained prominence over the past year. The Trump TACO meme symbolizes the many times President Donald Trump has uttered threats, only to then back down and allow cooler heads to prevail. The chattering class on television and the political analysts in their newspapers use the TACO acronym in a derogatory manner. It is regularly passed around on Wall Street, like a paper note traversing a ninth-grade classroom to tell Johnny that Suzy thinks he’s cute.
In the early morning of March 23, Trump took to Truth Social and informed the world that he would no longer bomb Iran’s power plants. Instead, he signaled that a deal to end the war would be imminent. Wall Street questioned if the Trump TACO was on the menu again.
On April 2, during his “Liberation Day” ceremony, Trump unveiled the contours of his sweeping global tariffs. A week later, he urged everyone not to be a “panican” and then implemented a 90-day pause on his reciprocal tariffs, initiating one of the largest relief rallies in US stock market history.
As the White House was pursuing Federal Reserve Chair Jerome Powell’s successor, it appeared that National Economic Council Director Kevin Hassett was going to be the next head of the US central bank. However, he eventually selected former Fed Governor Kevin Warsh.
It may seem like ancient times, but there was a moment earlier this year when it seemed like Trump was on the cusp of annexing Greenland. He backed away from this proposal and secured a handshake with the European Union to bolster security in the region and let American hands on the island territory’s vast resources.
With pundits and reporters unable to be flies on the wall behind the Resolute Desk, it is impossible to know exactly what the president’s next move is, whether on foreign policy or the economy.
Republican strategists will contend that these are examples of Trump using his Art of the Deal negotiating tactics: aim high, leverage your assets, maximize your options, remain persistent, and fight back hard. While this is true in many circumstances throughout his second term, from dealing with Canada to wrestling with China, there is one constant throughout this saga: yields.
Watch the Ten-Year
A key objective for the administration is to ensure that long-term interest rates, particularly the benchmark ten-year Treasury yield, decline to facilitate a revival in affordability and reduce the federal government’s debt-servicing payments. This is partly why the president hired Scott Bessent as Treasury Secretary, pressured the Federal Reserve, and created the Department of Government Efficiency (DOGE).
Leading up to Liberation Day, the ten-year plummeted below 4% as traders feared the unknown. However, one week later, the yield had soared 50 basis points to 4.5%, with many observers labeling it the “anti-America” trade. Trump pivoted, suspending reciprocal tariffs and effectively lowering rates.
By midsummer, interest rates began their ascent, flirting with 4.5% again. Trump eventually delayed the implementation of tariffs until August, which tempered Treasury market volatility.
The ten-year Treasury yield slipped below 4% again in December. Perhaps an early Christmas present for Uncle Sam. But expectations that Trump would nominate Hassett as the next Fed chief may have spooked fixed-income investors, who feared a dovish stance would rekindle the inflation flame. Instead, Trump picked well-known hawk Kevin Warsh, sending the ten-year lower.
One of the largest and most important investment vehicles yet again fell below 4%. Then, the US-Israel joint military operations in Iran began, and the ten-year rocketed and eyed 4.5%. Trump’s Truth Social post calmed yields, but they reignited their upward climb a session later.
At the close of the March 24 trading session, the ten-year Treasury yield finished around 4.4%.
All Part of the Plan?
The next time a major announcement emanates from 1600 Pennsylvania Ave. that roils global financial markets, determining the White House’s next steps may require taking a peek at the US government bond market. A key ingredient of the Trump TACO might be long-term interest rates.
