In a scene that no amount of central bank intervention could smooth over, Donald Trump became the first sitting US president to attend an NBA Finals game, only to be met with a chorus of boos from the Madison Square Garden crowd. For those of us who read the bond markets, this is more than just a political spectacle. It is a signal of deepening domestic volatility, a factor that institutional investors are already pricing into their risk models.
The optics of a president being publicly jeered at a major sporting event will not calm the jittery capital flows we have seen this quarter. It reinforces the narrative of a divided America, and division is a tax on economic efficiency. The dollar barely flinched, but that is the calm before the storm.
When political capital depreciates, fiscal credibility follows. One can only wonder how long the gilt-edged safety of US Treasuries will hold if such divisions become the new normal. The Federal Reserve may talk of patience, but the market is already discounting a higher risk premium.
For the City of London, this is a reminder that political theatre has real consequences for portfolio allocation. The boos at the Garden may yet echo in the trading floors of Canary Wharf.
