On Wednesday, President Donald Trump announced a temporary 90-day halt to tariffs on most countries, but bond yields continued to rise, signaling investor unease and defying the administration’s hopes of lowering borrowing costs. Despite Trump’s intervention in the ongoing trade conflict with China, the 10-year Treasury yield saw an increase of 13 basis points, reaching approximately 4.4%, close to the earlier day’s peak of 4.45%.
This move in bond yields contradicts the administration’s past assertions that economic reforms would drive borrowing costs lower. Treasury Secretary Scott Bessent had previously stated that cutting government spending and improving efficiency would lead to a favorable interest rate cycle, contributing to falling yields.
However, despite the administration’s actions, investor behavior has shifted. As fears of a recession grow and U.S. stock markets continue their downward slide for the fifth consecutive day, investors are increasingly selling U.S. Treasuries—often considered a safe-haven asset in times of economic uncertainty. Even as new tariffs on Chinese goods increased the overall tariff rate to 104%, and President Trump later raised it to 125%, bond yields remained elevated.
The 10-year Treasury yield’s peak marks its highest point since early 2017, after Trump’s initial announcement of tariffs on Mexico and Canada. This spike in bond yields signals a broader trend—typically, investors flock to bonds when recession concerns rise, driving yields down. But in this instance, that trend is not holding.
Analysts suggest that the bond sell-off may be linked to investor skepticism about the U.S.’s position as a safe haven amid mounting geopolitical and fiscal uncertainty. “Investors began to question whether U.S. government debt still qualifies as a reliable safe haven,” said David Morrison, senior market analyst at Trade Nation, noting the potential for forced selling due to fears of disruptions in the financial system.
Moreover, some market watchers believe that China, which held $760 billion in U.S. Treasuries at the start of the year, might start offloading its holdings as trade between the two nations continues to sour. Lawrence Gillum, chief fixed-income strategist at LPL Financial, suggested that although Treasury yields have not behaved like haven assets, they would likely decrease if the economy contracts significantly.
A further complication arises from the “basis trade”—a highly leveraged bet on Treasuries, estimated at $800 billion, placed by hedge funds. According to Apollo’s chief economist, Torsten Sløk, this trade could unravel in the event of an external shock, contributing to the current bond market turmoil.
As geopolitical tensions escalate, with China retaliating against the latest U.S. tariffs by imposing an 84% reciprocal tariff on American goods, the trade war has now reached its highest intensity in over a century. Trump, in a Truth Social post, claimed that China will soon recognize that its trade practices are no longer sustainable, highlighting the intensifying conflict.
With bond markets unsettled and fears of an economic slowdown rising, the situation remains precarious for investors, as they navigate the increasingly unpredictable landscape of U.S.-China relations and global trade policies.
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