Two-Track US Policy Creates Headwinds For Risk Sentiment

Authored by Michael Ball, Bloomberg macro strategist,

The Trump administration’s focus on national security and affordability this week sets up tension in the market: The security push leans toward bigger deficits and higher yields, undermining the affordability goals and leaving a backdrop that is a headwind on risk appetite.

The White House spent the week reinforcing both ideas, even if execution and hence results looks murky. On affordability, the headline was housing. Trump instructed Fannie Mae and Freddie Mac to buy $200 billion of mortgage bonds, with the aim of compressing MBS spreads and pulling mortgage rates lower.

The fine print is the problem, as my colleague Alyce Andres noted -- the administration has not clarified pace or composition. The mechanism from MBS demand to true affordability is weaker than the messaging suggests. You can move spreads quickly but can’t fix a decade of underbuilding with a trading program.

The administration’s other housing affordability move was going after institutional ownership of single-family homes, which may be popular politically but creates a messy economic reality. Turnover is already impaired by rate lock-ins that keep owners from taking on costlier mortgages, while rising insurance costs compound the affordability squeeze. Dropping a thin cohort of buyers doesn’t materially change supply dynamics, though it can pressure builders and home equity gains if demand wobbles in key markets.

Further, the supply-side constraints keep getting worse. Immigration enforcement is being scaled up aggressively, tightening construction labor at the wrong time. Meanwhile, the administration is openly supportive of the AI buildout, which pulls labor, materials and power infrastructure toward data centers. When residential construction competes with that, it loses — with higher costs worsening the affordability problem.

National security priorities were the Trump administration’s other track, dominating the week’s headlines. Actions in Venezuela were a signal that the US is prepared to change the rules of the game in its hemisphere. Tanker seizures, controlling Venezuela’s oil distribution and the broader posture toward rivals all raise the geopolitical temperature and increase tail risks.

Iran’s unrest adds another source of risk premium, especially to oil markets. If the turmoil raises the odds of another Israel or US strike, the retaliation risk jumps, putting Middle East supply back in the crosshairs.

Trump’s renewed aggression towards Greenland and others is the clearest illustration of national security priorities tied to critical minerals, maritime and Arctic security outranking traditional alliance management. This tarnishes the US brand, creating a world where the US may no longer be the partner of choice. This lowers profitability for US multinationals and means valuations should fall, all else equal. It’s also naturally destabilizing, warranting higher premiums across risk assets.

The real problem is that the two pillars don’t add up. Housing affordability benefits from lower yields. National security entails greater spending, enforcement, and foreign adventurism, and bond vigilantes should increasingly notice. As a result, the end goals are harder to attain and instead the US may be left with the worst aspects of both -- and markets in a muddle until one or the other emerges as a clear priority.