Trump's $200B Bond Plan Rattles Treasury Market

Frederick Miles

Economic

Daily News

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Central Bank

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Bond

Summary:

Trump's bond call, jobs data, and tariff ruling stir Treasury markets, clouding the Fed's rate path.

A late-day announcement from President Donald Trump calling for a $200 billion purchase of mortgage bonds sent a jolt through the U.S. Treasury market, allowing long-dated government debt to trim earlier losses.

The yield on the 10-year Treasury note, a critical benchmark for mortgage rates, edged lower just before the close on Thursday. The move came after Trump posted on Truth Social that he had instructed "representatives" to buy mortgage-backed securities in an effort to bring down housing costs. The 30-year Treasury yield also stabilized, finishing the day nearly unchanged.

All Eyes on Jobs Data and Supreme Court Tariff Ruling

Despite the late rebound, Treasury yields remained higher on the day by as much as two basis points. Investors are holding their breath for two major events: Friday's December employment report and a potential Supreme Court ruling that could dismantle tariffs that have been bolstering the U.S. fiscal position.

Andrew Brenner, vice-chairman at Natalliance Securities, noted that Treasuries have "a strong underlying bid" which could limit any potential selloff, even if the employment data comes in strong. However, he warned that a Supreme Court decision on tariffs "could send rates in either direction."

This cautious sentiment was also reflected in the options market, where one trader bought a $7.5 million call option on 10-year note futures expiring Friday, a hedge that protects against a rally in bond prices (and a fall in yields).

Fed Rate Cut Path Hangs in the Balance

The upcoming jobs data is crucial because it has the power to reshape expectations for Federal Reserve interest rate cuts this year. The Fed implemented three cuts at the end of last year in response to a softening job market. Now, with several Fed officials expressing concerns about inflation risk and suggesting a pause, the path forward is uncertain.

Currently, traders of short-term interest rate products are pricing in minimal odds of a rate cut at the next Fed meeting on January 28, though they anticipate two cuts by the end of the year.

Compounding the uncertainty is the future leadership of the central bank. Fed Chair Jerome Powell's term expires in May, and President Trump has already stated he will not be reappointed due to rates being too high. The administration has teased the announcement of a nominee for months. According to The New York Times, Trump claimed in an interview on Wednesday that he had made his decision but had not yet informed anyone.

Market Navigates Supply Pressures

Beyond policy and economic data, supply dynamics are also influencing yield levels. This week is shaping up to be a historic one for new investment-grade corporate bond sales, which compete with Treasuries for investor funds. With $88.4 billion sold in the first three days, the week already ranks among the five largest on record.

At the same time, the Treasury Department is preparing its own issuance. The first coupon auctions of the year are set for Monday and will include sales of three- and 10-year notes. All of next week's auctions are scheduled earlier than usual to ensure they conclude by their January 15 settlement date.

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Political

U.S. Oil Takeover Clashes with China's Longstanding Venezuelan Interests

In the wake of President Nicolás Maduro’s capture by U.S. forces, President Donald Trump has moved swiftly to seize control of Venezuela’s oil exports. However, this strategy places the U.S. on a collision course with China, which has entrenched itself in Venezuela through over two decades of loans and joint energy ventures. While Trump portrays the move as a means of liberating Venezuela and neutralizing hostile foreign influence, Beijing sees it as a direct assault on its financial and geopolitical foothold in Latin America.

From 2000 to 2023, China extended approximately $106 billion in official loans to Caracas, much of it in exchange for oil. These arrangements made Venezuela the fourth-largest recipient of Chinese state credit globally. Although estimates place the outstanding debt at $10 billion, the true amount remains opaque due to Venezuela’s limited financial disclosures and the disruption of oil flows caused by U.S. sanctions. Many of these loans are collateralized through long-term oil supply contracts a setup now in jeopardy as the U.S. begins to redirect Venezuelan crude exports under its own terms.

Chinese Oil Rights and Infrastructure Now at Risk

Two major Chinese state-owned enterprises, China National Petroleum Corporation (CNPC) and Sinopec, are entitled to a combined 4.4 billion barrels of Venezuelan oil reserves more than any other foreign entities. Beyond energy, Chinese companies have invested heavily in telecommunications, railway systems, and port infrastructure. These physical assets, once secure under Maduro’s pro-China governance, now face potential expropriation or invalidation by a transitional regime aligned with Washington.

This situation echoes China’s losses in Libya, where billions in investments were wiped out following the fall of Moammar Gadhafi. Scholars in Beijing have warned that the transitional Venezuelan government may declare Maduro-era deals illegitimate, especially under pressure from Washington to reduce adversarial influence. The consequence would be not only financial losses for China but also a symbolic retreat from the Western Hemisphere a region where it has steadily expanded its presence.

Balancing Trade Peace and Strategic Assertiveness

The Trump administration now faces a delicate balancing act. While Washington’s National Security Strategy has long emphasized removing adversarial powers from Latin America, Beijing remains a vital player in global trade. Trump is scheduled to visit Beijing in April, a diplomatic effort aimed at reinforcing the fragile trade truce he struck with Chinese President Xi Jinping in October. Experts suggest that Trump is unlikely to allow the Venezuelan oil dispute to escalate into a full-blown confrontation, particularly if it risks derailing broader economic cooperation.

According to Craig Singleton of the Foundation for Defense of Democracies, the administration seems intent on preserving leverage over China while avoiding new provocations that could complicate bilateral relations. However, the seizure of oil tankers and U.S. control over Venezuelan crude sales currently estimated at 30 million to 50 million barrels could provoke more than symbolic pushback from Beijing.

Beijing's Response: Condemnation Without Leverage

China responded to Maduro’s capture with sharp condemnation, calling the act a “blatant violation of sovereignty.” The Ministry of Commerce declared that no country has the right to interfere with China’s economic ties with Venezuela. Nevertheless, analysts argue that China’s diplomatic protests are unlikely to deter Washington. Despite its financial reach, Beijing lacks the military and political influence to enforce its interests once the U.S. decides to apply direct pressure.

This reality underscores a power asymmetry. While China has poured money into Venezuela, it cannot shield those investments under current geopolitical dynamics. Its strategy of economic statecraft, successful in regions like Africa and Southeast Asia, faces harder limits in Washington’s strategic backyard.

U.S. Firms Await Oil Windfall, While Legal Claims Loom

American companies that suffered billions in losses when Venezuela nationalized its oil industry are now preparing claims of their own. How competing IOUs from Chinese and U.S. firms will be prioritized remains unresolved. Energy Secretary Chris Wright has stated that profits from seized oil will be placed in U.S.-controlled accounts and eventually redirected for the benefit of the Venezuelan people a policy designed to legitimize the seizure while undermining creditor nations like China.

Meanwhile, trading firms such as Trafigura and Vitol have secured preliminary U.S. Treasury licenses to trade Venezuelan oil, signaling Washington’s intent to cement new commercial ties rapidly and push Chinese refiners historically the main buyers of discounted Venezuelan crude out of the supply chain.

Trump’s aggressive strategy in Venezuela has opened a new front in the contest with China. With billions in Chinese-backed oil assets and infrastructure now exposed to American control, the risk of diplomatic fallout looms large especially as Trump prepares for high-level engagement with Xi Jinping. Whether the administration can simultaneously assert dominance in Latin America and maintain economic cooperation with Beijing remains uncertain. For now, Venezuela is no longer just a regional issue it is a global test of influence between two superpowers.

Source: AP

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Edward Lawson

Remarks of Officials

Economic

Commodity

The global copper industry is on a collision course with a "structural deficit" between 2030 and 2035, requiring a massive ramp-up in production to meet skyrocketing demand. That’s the stark warning from Brandon Craig, president of BHP Americas.

According to Craig, the market needs an additional 10 million tons of copper between now and 2035. This means the industry must boost output by roughly 40% above current levels within the next decade alone.

This pressure is already reflected in the market. In January, copper prices hit a record high, with the London benchmark price approaching $13,000 per ton—a 40% increase from a year prior and a 60% jump from five years ago.

Surging Demand from China to AI Data Centers

The demand side of the copper equation is fueled by both traditional and emerging sectors. China, which consumes 60% of the world's copper, remains a key driver. While its residential sector has softened, Craig noted that demand is being sustained by a strategic push into advanced manufacturing.

"The underlying demand is being driven by other parts of the economy, principally manufacturing, and that continues to be really positive for copper," he explained, pointing to China's growth in electric vehicles and renewable energy projects.

At the same time, a new and powerful demand driver is emerging: the rapid expansion of data centers for artificial intelligence. Copper is essential for these facilities, used in everything from wiring and semiconductors to critical cooling systems.

While this digital segment is still in its early stages, its growth potential is enormous. According to BHP's analysis:

• Traditional Uses: Power cables and infrastructure still account for 92% of copper demand.

• Energy Transition: Green energy technologies make up 7%.

• Digital Infrastructure: Data centers and AI currently represent just 1%.

"It's currently a relatively small share of the market," Craig stated. "If you project forward sort of 10 or 15 years, it'll progressively become a more and more material impact."

The Supply-Side Bottleneck

While demand accelerates, miners face significant hurdles in increasing supply. A primary challenge is the declining quality of existing copper deposits. As mines age, the ore grade—the concentration of copper within the rock—naturally falls. Over the past three decades, the average ore grade has dropped by approximately 40%, making it harder and more resource-intensive to extract the same amount of metal.

The International Energy Agency (IEA) echoed these concerns last year, warning that without sufficient action, copper supply could fall 30% short of what's needed by 2035. "This will be a major challenge," IEA Executive Director Fatih Birol said. "It's time to sound the alarm."

BHP's Strategy: Tech, Investment, and Acquisitions

In response, major producers like BHP, the world's largest mining company by market cap, are deploying a multi-pronged strategy focused on technology, investment, and strategic acquisitions.

Boosting Efficiency with AI

At the Escondida project in Chile, the world's largest copper mine, BHP has successfully used technology to increase production by nearly 30% over the last three years. Craig emphasized that artificial intelligence and machine learning are central to this effort.

By analyzing real-time data from ore concentrators, AI helps optimize processing and improve copper recovery rates. It also identifies materials that could damage crushing equipment before they cause downtime, directly boosting productivity. "What's really important is you have choices in terms of how you operate the mine," said Craig, noting that AI helps "offset some of the constraints" impacting the industry.

Growth Through New and Existing Projects

BHP has also aggressively pursued growth by acquiring copper assets, including Australian miner Oz Minerals and Canadian-listed Filo Corp. The company also attempted to acquire London-based Anglo American in 2024 and 2025.

Alongside acquisitions, Craig highlighted the importance of investing in existing projects, such as Escondida, Resolution in Arizona, Kitlanya in Botswana, and Olympic Dam in South Australia. "For those companies like us who have world-class resource positions, we can absolutely invest into organic projects that are very competitive," he said.

Geopolitical Risks and the Path Forward

The copper market is not immune to geopolitical turbulence. Market volatility has been fueled by speculation over potential U.S. tariffs, while China's dominance in refined copper production creates potential supply chain vulnerabilities.

However, Craig believes the long-term fundamentals will ultimately outweigh short-term political shifts. The key, he argued, is building a more resilient and efficient global supply chain.

"The politics will change over time," he concluded. "But the fundamental demand and supply of copper is ultimately going to be determined by how efficiently we can connect mines, smelting, refining capacity and end use."

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James Riley

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Remarks of Officials

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Russia-Ukraine Conflict

China–U.S. Trade War

France's aerospace industry leaders are issuing a stark warning about the "weaponization" of global supply chains, highlighting how geopolitical rivalries are turning critical materials into strategic leverage. Olivier Andries, president of the French aerospace association GIFAS and CEO of engine maker Safran, flagged rare earths as a major vulnerability in the ongoing tensions between the US and China.

China's Grip on Rare Earths Poses Geopolitical Threat

The core of the industry's concern lies in its dependency on China, which supplies 90% of its rare earth needs. Andries explained that the trend of using critical supply dependencies for geopolitical advantage is growing, putting aerospace in a precarious position.

While the sector has mostly dodged direct hits from the US-led tariff conflicts due to the deeply integrated supply chains of giants like Airbus and Boeing, the availability of specialized minerals remains a significant worry. These materials are essential, found in small but critical quantities in advanced products like modern jet engines.

The problem extends beyond mere supply quantity. Andries noted that Chinese authorities are asking "intrusive" questions about the final destination of these materials, a tactic he compared to the extra-territorial playbook developed by the United States. He stressed that this issue is significant enough to require a coordinated response at the European level.

Navigating European Defense Projects and Politics

Beyond global supply chains, Andries also pointed to domestic and intra-European challenges. He expressed concern over the lack of a French domestic budget for 2026, stating that parliamentarians had "lost direction." French Prime Minister Sebastien Lecornu is currently attempting to pass the budget following the use of emergency legislation.

For now, France's defense spending remains on track, buoyed by increased European military investment in response to the conflict in Ukraine and political pressure from the US.

However, major collaborative projects face hurdles. Regarding the Franco-German-Spanish Future Combat Air System (FCAS) fighter project, Andries acknowledged a "very strong political will" from the leaders of France and Germany. But he cautioned that progress hinges on industrial cooperation, stating, "you also need to have agreements and the manufacturers accepting to work together." This comes amid friction between key players Airbus and Dassault Aviation, with Dassault criticizing Germany's decision to purchase US-made F-35 fighter jets alongside its commitment to European programs.

US Actions Reinforce Need for European Sovereignty

Recent geopolitical moves by the United States are further fueling Europe's drive for strategic autonomy. Citing former President Donald Trump's renewed threats to take over Greenland, Andries argued that such statements amplify the debate over relying on foreign military hardware.

"These rather uninhibited messages only increase the growing awareness in Europe that while we are of course partners and allies of the United States, we have to cultivate our own sovereignty and not totally entrust our future to another state," Andries told reporters. The dispute over the Danish territory has alarmed NATO allies, gaining new urgency after Trump's actions against Venezuelan leader Nicolas Maduro.

Ultimately, Andries urged French suppliers to invest strategically in the coming years. He emphasized the need to prepare for both rising European defense expenditures and the development of next-generation commercial airliners, positioning the industry to expand its role in both sectors.

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Commodity

U.S. Seizure of Venezuelan Oil Triggers Tensions With Beijing

The Trump administration’s aggressive move to seize control of Venezuela’s oil sector has introduced a new geopolitical complication: how to navigate China’s deep financial and strategic entanglements in the country. With President Nicolás Maduro removed from power and U.S. companies preparing to step into Venezuela’s energy vacuum, Washington must now contend with China’s existing claims both legal and economic that stem from decades of oil-backed loans and infrastructure investments.

Between 2000 and 2023, China extended approximately $106 billion in loans to Venezuela, making it the fourth-largest recipient of Chinese official lending globally. Much of this debt was structured as loans-for-oil agreements, with Caracas repaying in crude shipments. However, estimates of Venezuela’s outstanding debt to China vary widely. While some suggest $10 billion remains, researchers at AidData caution the actual figure could be much higher due to a lack of reporting and the disruption of oil flows from U.S. sanctions in recent years.

Chinese Oil Interests Now in Limbo

China’s commercial interests in Venezuela are considerable. According to Morgan Stanley, state-owned giants CNPC and Sinopec hold entitlements to roughly 4.4 billion barrels of oil reserves more than any other foreign power. In addition to energy, Chinese firms have invested in Venezuela’s telecommunications, ports, and railway sectors, signaling long-term intent to secure influence in Latin America. However, the ouster of Maduro has upended this strategy.

The U.S. has begun redirecting Venezuela’s crude for sale on the open market, stating that proceeds will go into U.S.-controlled accounts intended to benefit the Venezuelan people. Chevron, the only U.S. major still authorized to operate in the country, is ramping up exports. Meanwhile, trading houses like Vitol and Trafigura have secured provisional U.S. Treasury licenses to handle Venezuelan oil, potentially displacing Chinese refiners who had relied on discounted crude amid sanctions.

Causal Friction Between Strategic Aims and Trade Stability

The unfolding scenario represents a potential point of friction between two competing aims of the Trump administration: asserting strategic dominance in the Western Hemisphere while preserving a fragile trade détente with China. Trump is expected to visit Beijing in April to reinforce that truce. Analysts suggest that the administration is unlikely to let Venezuela derail broader trade priorities. As Craig Singleton from the Foundation for Defense of Democracies put it, the U.S. may apply pressure carefully, avoiding a “flashpoint” that jeopardizes ongoing negotiations with China.

Nevertheless, the causal impact of U.S. actions in Venezuela could be significant. By undermining Beijing’s investments and ignoring Chinese oil rights, Washington risks fueling a deeper strategic rivalry. This reflects a deliberate shift in U.S. policy: reducing adversarial influence in Latin America, a cornerstone of Trump’s national security doctrine.

Beijing’s Legal and Diplomatic Response

China’s official response was swift and critical. After Maduro’s capture, the Chinese Foreign Ministry expressed “deep shock” and “strong condemnation” of what it labeled an illegal U.S. intervention. Spokesperson He Yadong insisted that economic cooperation between China and Venezuela is protected by international law and should not be impeded. However, analysts argue that China’s ability to influence outcomes in the region is limited. While Beijing may lodge diplomatic protests, it lacks the military and economic leverage to defend its interests once Washington acts unilaterally.

The memory of Libya looms large in Beijing. After Moammar Gadhafi’s fall in 2011, Chinese businesses lost billions in investments. Venezuela now risks becoming a similar case. The interim government could choose to reclassify agreements made under Maduro as invalid or illegitimate, opening the door for U.S. firms to claim priority over Venezuela’s future oil profits.

A Strategic Realignment in the Hemisphere

Venezuela is currently China’s only “strategic partner” in Latin America, a status shared with a select few countries like Pakistan. The collapse of the Maduro regime and the U.S. occupation of Venezuela’s oil assets represents a significant contraction of Chinese influence in the Western Hemisphere. For the U.S., this marks a victory in the geopolitical contest for regional dominance.

Still, Beijing is unlikely to retreat entirely. China’s energy security no longer depends heavily on Venezuelan crude, having diversified supply sources and increased investment in electrification. Its losses in Venezuela, while symbolic, may not cripple its global energy strategy.

President Trump’s takeover of Venezuela’s oil sector poses a complex diplomatic test with China. While Washington tightens its grip on the Western Hemisphere’s energy resources, it risks undermining its delicate trade ceasefire with Beijing. The coming months will test whether the administration can assert geopolitical control without triggering deeper conflict with its primary economic rival or whether Venezuela becomes the next front in a widening U.S.-China contest.

Source: AP

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Commodity

Economic

Geopolitical Risks Support Oil Price Upside

Oil markets continued upward momentum as traders priced in heightened uncertainty over crude supply linked to geopolitical developments involving Iran and Venezuela. Unrest in Iran, including civil protests and potential disruptions to output, has contributed to fears of constrained exports from one of OPEC’s key producers. Concurrently, U.S. actions against Venezuela’s government and moves to exert influence over the South American nation’s oil exports have introduced further ambiguity about future supply flows. These factors have underpinned recent increases in both Brent and West Texas Intermediate crude futures, with prices poised for a weekly advance following notable gains in recent sessions.

Market dynamics have been significantly shaped by the evolving situation in Venezuela, where U.S. forces intervened and attempts are underway to bring the country’s oil sector under American influence. Traders are interpreting these developments as both a risk premium on potential supply disruptions and a reallocation of future crude flows. Major energy firms and trading houses are reported to be engaging with the U.S. government to explore opportunities in Venezuelan oil exports, potentially shifting the traditional flow of crude away from buyers such as China. Although Venezuela’s production has historically been well below its vast proven reserves due to chronic underinvestment, speculation about enhanced output under new arrangements has influenced prices.

Complex Balance Between Risk Premiums and Oversupply

Despite the upward pressure from geopolitical risk, analysts caution that structural factors continue to limit sustained price rallies. Global oil markets are grappling with oversupply conditions, supported by high inventories and production from multiple regions. Expectations that Venezuela could eventually increase its output remain tempered by the significant investment and time required to rehabilitate its aging infrastructure. In this context, the recent price uptick reflects a mix of risk‑related premia rather than a decisive shift in the fundamental supply‑demand balance.

The recent gains in oil prices demonstrate how geopolitical tension correlates with short‑term market sentiment, especially when linked to supply risks in major crude‑producing nations. However, the longer‑term trajectory will depend on whether disruptions materialize or if policy moves lead to greater actual output. Traders remain attentive to further news from both the Middle East and Venezuela, with prices sensitive to developments that could either tighten or ease perceptions of global supply constraints.

Oil’s recent rally underscores how external political events can influence investor expectations and commodity pricing, even in markets characterized by abundant supply. While geopolitical risks have supported price gains, fundamental factors such as global inventory levels and production capacity continue to temper long‑term bullish sentiment.

Source: Bloomberg

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King Ten

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Energy

U.S. President Donald Trump has indicated that Venezuelan opposition leader Maria Corina Machado is expected in Washington next week, a significant development following U.S. strikes that resulted in the capture of President Nicolas Maduro.

Venezuelan opposition leader Maria Corina Machado is expected in Washington following the capture of Nicolas Maduro.

During a Fox News interview, Trump confirmed his awareness of her potential visit. "Well, I understand she's coming in next week sometime, and I look forward to saying hello to her," he stated.

The White House has not yet provided additional details on a potential meeting. This would mark the first encounter between Trump and Machado, who won the Nobel Peace Prize in October and said earlier this week she had not spoken with the U.S. leader since then.

Uncertainty Over Venezuela's Future Governance

The political future of the South American nation remains a key question. The planned meeting comes after Trump dismissed the idea of working with Machado over the weekend, claiming "she doesn't have the support within or the respect within the country."

With interim acting President Delcy Rodriguez currently leading the country, Trump suggested that Venezuela is not yet prepared to hold elections.

"We have to rebuild the country. They couldn't have an election," Trump told Fox News. "They wouldn't even know how to have an election right now."

Rebuilding Venezuela's Oil Industry a Top Priority

As an OPEC member and a major oil producer, Venezuela's energy sector has become a central focus for the Trump administration. A senior official told Reuters that oil sales to the United States will commence immediately, with an initial shipment of 30 million to 50 million barrels. These sales are expected to continue indefinitely.

To facilitate this, President Trump announced he will meet with oil executives at the White House on Friday. He emphasized that these companies will be instrumental in reconstructing Venezuela's oil industry.

"They're going to rebuild the whole oil infrastructure," Trump said. "They're going to spend at least $100 billion and it's an unbelievable oil that they have, and an unbelievable quality of oil and amount of oil."

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