What does the Greenland Defense Agreement actually contain?
President Trump has said the United States needs more control over Greenland. However, a 1951 treaty already allows extensive military access.
On January 17, President Donald Trump announced his opposition to the annexation of Greenland and his intention to impose additional tariffs on products from European countries.
On January 20th, the first day the market opened after a long weekend, stocks and bonds sold off heavily. The S&P 500 hit a three-month low, and gold, a safe-haven asset for investors, hit a new all-time high.
On January 21, President Trump withdrew from the deal, citing a “framework agreement” regarding US access to Greenland.
Many observers were reminded of the term “TACO trade,” which was coined to describe how financial markets would react to President Trump’s far-reaching policies in mid-2025 and rebound if he reversed them. TACO stands for Trump Always Chicken Out.
Among casual observers, the TACO phenomenon is considered an interesting oddity and an indication that it’s time to buy stocks. But among professional investors, the situation is even more serious.
“The guardrails around the political sector are only working to a certain extent,” said Joseph Brusuelas, chief economist at consultancy RSM. “But private capital markets appear to be very strong in their ability to constrain unconventional behavior.”
In particular, Brusuelas said, “The bond market remains undefeated.”
John Canavan, principal analyst at Oxford Economics, wrote on January 21 about the “spike” in bond market yields, noting that “bond yields rose by 11 (basis points) through the U.S. open, 10-year yields rose by 8 (basis points), and 2-year bond yields rose by 2 points.”
Keith Lerner, chief investment officer and chief market strategist at Trust Advisory Services, also took note. “When the bond market becomes concerned about policy, it will act,” Lerner told USA TODAY. “This is basically a direct message to the administration and the Secretary of the Treasury.”
In fact, Lerner believes Secretary Scott Bessent, who was a private sector investor before taking the top job at the Treasury, is acting as a stabilizing force against further extremes in the market. It also helped, Lerner said, that the White House, at least so far, has backed away from its most shocking ideas when markets react.
Still, if the White House doesn’t change course quickly enough in the future, there’s still a chance the market will react outright.
Investors closely monitor developments in the bond market because it underpins many elements of financial services. For example, the 10-year Treasury determines the price of mortgages and corporate bonds.
And yields on U.S. sovereign debt traditionally move in conjunction with other asset classes, such as the dollar. An appreciation or depreciation of the dollar can either benefit or harm U.S. exporters as well as consumers.
Perhaps the strongest reaction in the bond market is what is known among professional investors as “cautiousness.” This refers to what happens when a country’s bondholders don’t like its policies and sell (or stop buying) their bonds to force the government’s response.
Bond yields move in the opposite direction to bond prices, so if you force the price down by selling, the yield (interest rate) will go up. This makes it more expensive for countries to issue bonds to service their debt.
“Policymakers should discount global bond investors at their peril,” Brusuelas said in an interview just days after the January 21 Framework announcement, when yields remained high.
“Inside the financial markets, the bond market is the smart money, and the smart money remains unconvinced that this is over.”
