The Cycle of Mistrust.

From surprise, to skepticism, to discomfort. And finally, to selling.

Trust is a strange thing.

They say it can take a lifetime to build a reputation for reliability, and only one misstep to destroy it. People, clients, investors place their trust in a person, buy a good or service, or invest in a specific asset because they don’t want surprises. Knowing in advance, with reasonable certainty, what to expect plays a crucial role in economic decisions.

One invests in U.S. Treasuries or German Bunds, sometimes even at negative interest rates, because in times of risk, there’s certainty that the governments of Washington or Berlin will repay every cent borrowed. A seemingly minor error - even something as small as a delayed coupon payment - can irreparably damage market trust.

A reserve currency issuer must be like a Michelin-starred restaurant: flawless. People don’t expect it to be reliable on average, but always. A single mistake, a surprise, even an occasional one, spreads fast, eats away at perceptions, and reshapes opinions. At the first incident, the solid trust everyone places in the expected quality of the service or product begins to wobble. “Yes, but… one night it happened to me…”

An ill-considered, unexpected statement might lead to a few extra basis points demanded on the secondary market, usually followed by a burst of volatility as speculative players move in. Trust wavers. It turns into skepticism. Risk-averse investors now hover over the “buy” button with hesitation. They pause. They hesitate.

At this stage, discipline is essential. The response must be rigid, firm, clear: a message to the market that “nothing happened, you misunderstood us.”. Mistakes must be answered with renewed perfection. To silence criticism before it takes root, the response must be not just adequate, but better than before. It’s not enough to keep doing what was already done excellently. The bar must be raised just to win back the same level of trust. A mistake becomes like a disciplinary note in the best student’s record. He’s always been flawless, brilliantly prepared, but one day, he slipped. And if the teacher writes it down, it stays there. Permanently. Investor confidence starts to crack.

Starting a standoff with the market only fuels the vicious cycle. Skepticism becomes discomfort. Safe assets are the strongholds where financial giants place their capital. And they don’t like surprises. Usually, a message is sent. You’ll find it hidden in the details of government bond auctions. The qualitative aspects of issuance often carry subtle, yet powerful, signals. One of the cleanest, quietest ways to reduce exposure is simply not rolling over maturing bonds. A government bond matures and you just don’t show up at the auction. Simple. Effective. The message will be understood.

Persisting in a tug-of-war with the market destabilizes everything. Suddenly, the “sell” button becomes real. A viable option. An option available to all. An option to act on before others do, while prices are still favorable.

A moment of market turbulence on what was supposed to be the risk-free asset.

Trust, shattered in a second. It may take years to rebuild.