Dickson C. Igwe. Photo: VINO/File

The reason Trump has backed down from threatening the Federal Reserve in warning Chairman Jerome Powell of his displeasure, and then China with his tariff war, is warnings from ominous movements in the US bond market: bondholders hold the aces in the US financial and stock markets. 

When the stock market tanked in early April 2025 after a tariff war opened up, wiping trillions of Dollars off the value of shares in major corporations, Donald Trump simply smirked. However, when bond yields started to rise, pointing to discomfort from bondholders, Trump blinked and then stepped back. 

Bondholders are the platform upon which the Dollar rests. The integrity of the western economy is in the hands of the bond market. 

Bondholders loan cash to the Federal Reserve and receive securities, bonds or treasury instruments in return. That investor equity is where the Dollar is valued and enables the US Central Bank to print the Dollar that drives the world’s debt-laden economy. 

In effect, bondholders are the US government’s last port of call in maintaining spending and deficits. The Bond Market decides the power of the Dollar. Albeit, the might of the US economy and governing institutions are a critical factor in the Dollar’s hegemony. 

The Federal Reserve, backed by bondholders, decides the cost of finance and the rate of interest in the USA and Western economies. Government and private sector the world over depend on these preceding measures to drive domestic and international policy. It is not farfetched to state that the Federal Reserve is the world’s most powerful institution.

Without bonds, the global economy today would be a very different beast. It could not function as seamlessly as it does today. The bond is a type of insurance policy for the Dollar and US deficits.

Bonds are globally ubiquitous, and there are various bonds from different entities held by a wide array of bondholders.  For example, bonds sold by trusted governments are attractive to bondholders. Bondholders hold bonds such as the Eurobond and similar bonds from countries whose economies deem stable and sustainable.  

Trust is the currency of the bond market. Less stable and sustainable governments can sell bonds to investors, but at higher rates of interest. In other words, the higher the yield from the bond, the higher the cost of finance and governance. 

The global bond market is huge, estimated to be worth over $140 trillion. Bonds are attractive to investors for the simple reason they are more secure than stocks and similar capital assets such as commodities, real estate, and cryptocurrencies. They offer lower rates of return. However, investors feel secure in the knowledge that their bonds sit on the power and guarantees of government.