Remember - not last summer - but just two months ago when the US president presented his list of reciprocal tariffs, the financial community was left reeling. Banks and brokers rushed to produce research papers estimating the impact of these measures on US GDP, prices, global trade, etc., without bothering to understand that Donald Trump, a fervent believer in the carrot and stick strategy, never really intended to implement these measures, but only to force his trading partners' hands in negotiations.
As a result, recent publications on both consumer and producer price indices have come in below expectations. It is of course possible that distributors are initially liquidating the stocks accumulated at the beginning of the year before the tariffs were introduced and that the current statistics do not yet reflect the increase in tariffs. We will therefore have to wait until early July – or early August at the latest – to see whether importers and exporters have absorbed all or part of the famous tariffs, which have the dual objective of reducing the US trade deficit and limiting the dollar's appreciation. However, this is not without risk, as the trade surpluses generated by other countries were partly used to buy US debt. Fewer dollar surpluses therefore mean greater difficulty in placing debt, at a time when the US is facing colossal debts that need to be refinanced over the next two years.
As you can see, the road ahead is narrow, and we should not count on the BBB (Big Beautiful Bill) budget to reduce the bill. While it gives pride of place to tax cuts, the effects of which are not expected to be felt for another two to three years, spending cuts are conspicuous by their absence, despite the media hype surrounding DOGE. However, history has shown that periods of strong economic growth have followed both tax cuts AND reductions in public spending.
As such there is legitimate cause for concern that the bond market will react more sharply. It should be remembered that only the promise of attractive returns will be able to attract cautious investors, at the risk of stalling the economy if the underlying problem is not addressed quickly. Conclusion: it is high time, if not already, to monitor upcoming auctions, not only in the United States but in all major developed countries, in order to detect any potential problems. And while we're at it, it wouldn't hurt to decipher Jerome Powell's comments on the state of the economy and the future of US monetary policy.
