Trump's Foreign Policy Drives Up Interest Rates Globally

The Trump administration's foreign policy has contributed to rising interest rates in the US and globally. The Treasury Department intervened twice in recent months, buying Japanese yen and announcing plans to double long-dated Treasuries purchases. This move aims to lower bond yields, which have reached 5.3%, a level last seen in 2007.

The increase in interest rates is not only driven by domestic factors such as record debt and deficits but also by external shocks like the Iran war. The US actions have led to increased defense spending, higher tariffs, and reduced foreign lending to the US, pushing up bond yields.

Market professionals attribute the rise in interest rates to a vicious circle connecting a weakening yen, worries about inflation, and higher Japanese bond yields that could feed back into US bond markets. The trend is also linked to rising global inflation risks, with diesel prices near decade highs due to physical damage to refineries in conflict zones.

The Iran war has had multiple negative impacts on the bond market: increased defense spending, reduced investment capacity among Persian Gulf states, and heightened inflation risks. The conflict has differentiated among regional economies, with some Latin American currencies benefiting from their distance from the conflict while others have struggled.