Interest rates on US debt are shrinking pretty dramatically over the last few days. Why? Well it isn’t because of any real progress on the deficit, given the proposed budget in Congress. It isn’t because of lower inflation expectations. It is because of a perception that the economy has some weakness and that tariffs and other Trump actions may actually exacerbate those weaknesses. So stocks are selling off on the economic concerns and the sellers of stocks are buying more US debt, which has always been and may for a while longer be considered the ultimate safe haven in troubled and volatile times. The lower interest rates may themselves help with inflationary pressures, may boost some economic activity, such as home buying and may keep the interest burden on US debt a little lower. But I would expect this to be temporary in the absence of very large and sustainable reductions in the US deficit. If that doesn’t happen, rates will inevitably head higher.
