Spooked investors fear that the current high yield on government bonds inspired by President Donald Trump’s tariff chaos is beginning to echo a COVID-era low, as a mass sell-off intensifies.
Trump’s new 104 percent tariffs on Chinese imports, and China’s promise to hit back with between 34 and 84 percent duties on U.S. goods, has created a volatile picture for U.S. stock futures.
And experts from Deutsche Bank have warned that this week’s trading so far represents “simultaneous collapse in the price of all U.S. assets”—including bonds—and a step into “uncharted territory.”
In real terms, this leads to “heightened risk of negative shock to growth, disinflationary so eventually rate cuts,” according to Kenneth Broux from Societe Generale in London.
The Deutsche Bank strategists added that Trump’s administration is encouraging the sell-off of Treasury bonds, long regarded as a stable cornerstone in portfolio construction. This encouragement, the experts warned, is “functionally equivalent to lowering demand for U.S. assets as well.”
Higher yields—or interest rates—mean bond prices are falling and, with global economies already reeling from stock market chaos, jittery investors are dumping Treasuries to raise cash.
The Wall Street Journal reported that U.S. Treasury’s reputation as a “safe-haven asset” now appears “tarnished.”
After Trump’s latest tariffs were announced Wednesday, the benchmark 10-year U.S. Treasury yield sky-rocketed to 4.5 percent, up from around 3.9 percent just days prior. It was 10.5 basis points up this week. The yield on a 30-year bond went above 5 percent just briefly, before retreating. However, according to Tradeweb data, it was still up 45 basis points this week.
A surging yield means price dips as demand wanes. This is particularly hazardous as Treasury yields affect everything from mortgage costs to loan rates.
Even Treasury Secretary Scott Bessent admitted to a “convulsion” in the bond market. In an interview on Mornings with Maria Bartiromo on Fox Business Wednesday, he reassured that this is normal. “I’ve seen it, very often in my market career, there’s one of these deleveraging convulsions that’s going on right now in the markets and I think it’s in the fixed income market. There’s some very large leverage players who are experiencing losses that are having to deleverage,” he said.
Bessent argued that the bond market will soon stabilize.
“I believe that there is nothing systemic about this. I think that it is uncomfortable but normal deleveraging that’s going on in the bond market and I expect that as we see the leverage come down, the risk managers tapping people on the shoulders, telling them to bring their books down which is what happens every couple years as leverage builds up, then the market will calm down,” he said.
Even still, the “volatility” has inspired investors to start to “pull money out to brace for what could be to come next,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, said.
“This is a fire sale of Treasuries,” portfolio manager at the hedge fund Blue Edge Advisors Calvin Yeoh warned. “I haven’t seen moves or volatility of this size since the chaos of the pandemic in 2020,” he told Bloomberg.
Hedge fund billionaire Bill Ackman, a vocal critic of Trump’s economic policy of late, wrote on X: “Our stock market is down. Bond yields are up and the dollar is declining. These are not the markers of successful policy.”
Yields could come down if the Federal Reserve cuts interest rates. On Friday, Trump posted on Truth Social to appeal to the institution’s chairman, Jerome Powell, to do exactly that.
“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly,” he said. “CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!”
The picture is starting to mirror that of Britain in 2022, when the Bank of England had to step in to steady the bond market there. This ultimately cost Prime Minister Liz Truss her job after she was forced to do away with slated tax cuts to quell market tumult. She lasted just 49 days, less than a cabbage pitted against her by British tabloid the Daily Star.
Harvard educator and economist Jason Furman told that title Monday: “This is now much worse than a Liz Truss moment.”
And, speaking on California Governor Gavin Newsom’s podcast last month, former White House advisor Steve Bannon said “the bond market has turfed out more governments than howitzers.” He name-checked Truss as he listed off regimes toppled by bonds.
Wednesday’s $39 billion sale of 10-year U.S. Treasuries will now be watched intently as an indicator of market sentiment. A 30-year sale follows on Thursday.
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