On Jan. 17, President Donald Trump said he would impose additional tariffs on goods from European nations opposed to his desire to annex Greenland.

On Jan. 20, the first day markets were open after a long weekend, stocks and bonds sold off hard. The S&P 500 had its worst day in three months, and gold, which is a safe haven asset for investors, hit a fresh high.

On Jan. 21, Trump backed down, citing a “framework of a deal” for U.S. access to Greenland.

Many observers were reminded of the phrase \\"TACO trade,\\" coined in mid-2025 to describe how financial markets would respond to Trump’s far-reaching policies, then rebound when he walked them back. TACO stands for Trump Always Chickens Out.

Among casual observers, the TACO phenomenon is an interesting quirk – or something to signal it’s time to buy stocks. But among professional investors, it’s much more serious.

“The guardrails around the political sector are only working somewhat,” said Joseph Brusuelas, chief economist for consultancy RSM, “but private capital markets appear to be quite potent in their ability to put a constraint on unorthodox behavior.”

In particular, Brusuelas said, “The bond market remains undefeated.”

Markets: The bond market sell-off is more worrisome than the one in stocks. Here's what to know.

John Canavan, lead analyst for Oxford Economics, wrote about a \\"surge\\" in bond market yields on Jan. 21, noting \\"Bond yields rose as much as 11 (basis points) through the open of trading in the US, while the 10-year yield rose 8 (basis points), and the two-year yield ticked up 2.\\"

Keith Lerner, the chief investment officer and chief market strategist at Truist Advisory Services, also took note. “The bond market will act if it’s getting concerned about policies,” Lerner told USA TODAY. “It’s basically a direct message to the administration and the Treasury Secretary.”

In fact, Lerner believes that Secretary Scott Bessent, who was an investor in the private sector before taking the top role at Treasury, acts as a stabilizing force against even more extreme market moves. It also helps that – at least so far – the White House has walked back its most shocking ideas when the market does respond, Lerner said.

Still that leaves open the possibility of outright market reactions if the White House doesn’t change course fast enough in the future.

Investors are closely watching bond market dynamics because it underpins so many components of financial services. The 10-year U.S. Treasury note, for example, sets pricing for mortgages and corporate bonds.

And U.S. sovereign bond yields traditionally move in tandem with other asset classes, like the dollar. A higher or lower dollar may help or hurt American exporters – not to mention consumers.

Perhaps the strongest possible bond market reaction is one known as “vigilantism” among professional investors. That refers to what happens if holders of a country’s debt don’t like its policies, and sell (or stop buying) those bonds in order to force a government response.

More: Half of the bond market is US Treasurys. Why it's 'not healthy.'

Since bond yields move in the opposite direction from bond prices, forcing a price lower by selling then pushes yields (interest rates) higher. That makes it more expensive for the country to issue and pay debt service on bonds.

“Policymakers should discount global bond investors at their own peril,” Brusuelas said in an interview just a few days after the Jan. 21 “framework” announcement, when yields remained elevated.

“Inside financial markets, the bond market is the smart money and the smart money remains unconvinced that this episode has been brought to a close.”

This article originally appeared on USA TODAY: Why bond market 'remains undefeated' on Trump's 'TACO' trade