The bond vigilantes have claimed another scalp. President Trump has been cowed by the steepest fall in US government bond prices in 40 years and paused his sweeping tariffs on the rest of the world, barring China.

The president’s standoff with financial markets took a dangerous turn in the last 48 hours, as Wall Street traders dumped US government debt, raising 30-year borrowing costs to 5 per cent — a two-year high. Yields have surged by the largest amount since 1982 this week, propelling the US government’s 30-year borrowing costs above formerly stricken Greece.

Trump’s tariffs — which will raise inflation for American consumers and chill business investment — may have survived a stock market sell-off. But the debt markets are an altogether different beast even for the world’s financial hegemon to go toe-to-toe with.

• https://www.thetimes.com/article/tariffs-90-day-pause-trump-latest-news-k30s3gqxh Trump tariffs latest news – follow liveDomestic and international bond holders — who essentially hold IOUs from the government in return for funding the US’s trade and capital deficit — were always going to be the constituency the president could least afford to bully. As the former prime minister Liz Truss and countless emerging market economies have learnt over the last decades, credibility and predictability is key when you are reliant on the kindness of outside creditors. The quip by James Carville, an adviser to President Clinton, about wanting to be reincarnated as the bond market, because “you can intimidate everybody”, has yet to be proven wrong. Trump is the latest and most powerful leader to be forced into submission. It took a while for the bond markets to wake up to the economic and fiscal risks posed by the Trump administration. Late last week, bond markets played their traditional role as a haven in times of stress as money was yanked out of the stock market after the April 2 tariff announcement. • Hedge fund strategists count the cost of Donald Trump’s trade warBut as the promise of reciprocal tariffs became a reality on Wednesday morning, bond holders belatedly woke up to the US having the highest trade barriers in over a century, marking another major supply shock for an economy two years after an energy crisis and five years after the pandemic. The selling became a stampede as hedge funds with large bets on the treasury market were forced into fire sales to raise emergency cash to cover their positions. The 90-day pause is the reprieve that investors have been desperate for, but Trump has not removed the protectionist sword of Damocles over the heads of his major trading partners in China, Canada, Mexico, the European Union and the UK. The interregnum between now and July will be a frenzy of diplomatic talks. It gives the president an exit ramp from tariffs by allowing him to claim a magnificent victory over nations who will now be buying American goods, just as he did in 2019. This would be the unequivocal best case for Wall Street and corporate America, which have been plunged into a tailspin by the president’s team making erratic, conflicting statements on their policy goals for the last three months. In the short run, policy uncertainty is here to stay. Trump had vowed to use about $800 billion from his impending tariff revenues to fund mass tax cuts that are due to expire at the end of the year. He had promised US auto and steel workers new jobs and factories springing up in former industrial heartlands. His most hawkish trade advisers, such as Peter Navarro, could be left carrying the can for the U-turn and be booted out. It’s also not clear whether the tariff delay is an admission from the president that the US economy will be the biggest loser from tariffs that raise the prices of imported goods, erode corporate profit margins, and force businesses to sit on their investment decisions if they can’t access global supply chains. Everything has changed and nothing has changed. The world is again waiting and wondering what Trump will do next.