The Supreme Court delivered a mixed verdict on Monday, granting Donald Trump a partial win on immunity but dealing three significant blows to his legal and political ambitions. For markets, the ruling reinforces the unpredictability of US institutional checks and balances, a factor that increasingly weighs on risk appetite.
Trump’s victory: The court ruled 6-3 that former presidents enjoy broad immunity from civil suits for official acts, throwing out a lower court decision that had allowed lawsuits against him over the January 6 Capitol riot. This shields him from potential financial damages and legal distractions as he campaigns for the 2024 nomination. However, the practical impact on markets is limited; investors have largely priced in his legal entanglements as a sideshow to the main event: fiscal policy and inflation.
The three defeats: First, the court unanimously rejected Trump’s claim of absolute immunity from criminal prosecution, allowing state and federal cases to proceed. Second, it let stand a ruling that required him to testify in a New York fraud investigation. Third, it declined to block the release of his tax returns to Congress, a long-running saga that now ends with transparency.
For the bond market, the key takeaway is the resilience of US institutions. The Supreme Court’s willingness to check executive power, even from a former president, reaffirms the rule of law. This is positive for gilt yields relative to riskier sovereigns, as it reduces tail risk of constitutional crisis. However, the political noise will continue to distract from fiscal reform. The US debt-to-GDP ratio remains on an unsustainable trajectory, and neither party shows appetite for austerity. The 10-year Treasury yield, currently at 4.5%, could test 5% if fiscal discipline continues to erode.
Capital flight implications: Foreign investors, already wary of US political instability, may view today’s ruling as a net positive for institutional integrity. But the real driver of capital flows remains the Federal Reserve’s stance. With core inflation still sticky at 3.5%, the market is pricing in one more hike. The Supreme Court’s decision does nothing to alter that calculus.
In the short term, expect a modest risk-on tone: equities may tick up on the clarity provided, while the dollar holds steady. But do not mistake this for a long-term bullish signal. The US fiscal position is deteriorating, and the court’s ruling does nothing to address the looming debt ceiling showdown or the unsustainable growth in entitlement spending.
As always, the bottom line is the bottom line. Today’s legal battles are a sideshow to the systemic risks emanating from Washington’s inability to reconcile its spending habits with its revenue reality. The Supreme Court may have spoken, but the bond market will have the final say.
