How much market pain would trigger the “Trump put”?

Investing.com -- Global bond markets are under intensifying pressure and equities are beginning to wobble, but Capital Economics says the so-called "Trump put" is still a long way from being triggered.

In a note from Chief Markets Economist Jonas Goltermann, Capital Economics argued that judging by last spring's "Liberation Day" episode, "market conditions might need to get considerably worse to generate a similar full-scale retreat".

The firm pointed to several reasons why current stress levels fall short of last April's threshold.

While the 30-year U.S. Treasury yield has hit its highest level since 2007, yields have not risen nearly as fast as they did then.

Goltermann explained that Swap spreads have not widened by much, the dollar has traded largely in line with interest rate differentials, and option-implied volatility, while picking up, remains well below the panic-driven highs seen last April.

Capital Economics also noted that higher bond yields currently reflect expectations of tighter monetary policy rather than term premium effects, suggesting U.S. economic policy credibility is not in question to the same degree as before.

Perhaps most critically, the S&P 500 is not far from its all-time highs, a contrast to the roughly 20% drawdown seen last April that ultimately prompted a policy response.

The firm flagged an additional dynamic complicating the calculus, noting that the widespread belief that Trump would retreat if markets sold off sharply may itself be suppressing investor concern about worst-case scenarios.

Capital Economics concluded that "a bigger sell-off would be required to activate the Trump put."

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