The Bond Market Accomplished What Global Diplomacy Couldn't

It was a sharp sell-off of Treasury bonds that got the US to pull back from its tariff misadventure

- PUJA MEHRA

Just before a budget was to be presented by the Narendra Modi government some years ago, I was contacted by finance ministry officials who wanted the fiscal-deficit estimate reported accurately. I didn't see the urgency, but understood the anxiety—the then chief economic advisor's public statements on the deficit had worried the ministry and Reserve Bank of India (RBI). On budget day, I was in the Lok Sabha press gallery. The finance minister read out the deficit numbers in the speech. To my relief, the officials hadn't misled me. One of them walked up to me as I was leaving and said: "The RBI governor has just messaged the finance secretary: The bond markets are saluting you."

In India, the government exercises far more control over the bond market than in other countries, since it owns several of this market's players and holds influence over RBI, an influential participant. But no government can shrug off sell-offs in the bond market, which it uses to finance itself.

In the US, President Donald Trump, who was unmoved by the equity meltdown over his tariff war, beat a retreat at the first sign of an adverse reaction in the market for US Treasury bonds.