The cornerstone of the financial system shivered this week, with yields on government bonds rising sharply as the chaotic launch of tariffs has put investors in the key role the United States plays in the financial system.
U.S. government bonds, known as Treasury bonds, are backed by the full faith of the U.S. government, and the treasury market has long been regarded as one of the safest and most stable people in the world.
But as President Trump’s trade war escalates, unstable behavior in the fiscal market throughout the week has raised concerns about the impact of investors on U.S. assets.
The 10-year Treasury yield, arguably the world’s most important interest rate, rose about 0.1 percentage point on Friday, based on corporate and consumer lending. The sharp move throughout the week added to the swift move, which brought the 10-year Treasury yield to around 4.5% from less than 4% last weekend.
These growths may seem small, but they are huge moves in the fiscal market, prompting investors to warn that Mr. Trump’s tariff policies are causing serious turmoil. This is also important to consumers. For example, if you have a mortgage or a car loan, the interest rate you pay is related to a 10-year rate of return.
A decade-long treasury was also considered a safe haven for investors during a period of stock market fluctuations, but this week’s sharp rise in yields made this market extremely dangerous.
The bond yields the opposite price. As a result, as yields unexpectedly rise, investors around the world hold trillions of dollars in Treasury bonds are seeing a sudden drop in the value of their holdings.
Analysts say the 30-year-old bond’s yield rise is also historic. The bonds are considered a special shelter for pension funds and insurance companies because they have responsibilities that extend into the future, so they need the assets that match them.
“This is not normal,” Ajay Rajadhyaksha, chairman of Barclays Global Research, wrote in a report on Friday. Mr Rajadhyaksha struggled to seek explanations, pointing out that speculations from Asian investors were sold in response to tariffs and that highly leveraged bets could be abandoned in the fiscal market. “For whatever reason, the bond market is in trouble,” he said.
The yield on 30-year bonds rose 0.44 percentage points this week, and trading on Friday remained roughly flat. Exercise indicates a drastic change in the demand for long bonds. The Fed set some very short-term interest rates and then disappeared in the financial market. However, away from the Fed’s interest rate, the smaller the impact of the central bank.
“Once they get to the far end, they won’t really be in the photo,” said fund manager Loomis, portfolio manager at Sayles & Company. “In that market, there are fewer natural buyers. Small changes in supply and demand can lead to large fluctuations.”
Typically, the nearly $300 trillion Treasury market is too large to be significantly affected by the shift in purchasing appetite, highlighting the severity of the market’s current action in the market, analysts said.
Since October 2023, the measurement of volatility in the treasury market has reached its highest level.
“We’ve seen a lot of sales,” said Vishal Khanduja, portfolio manager for Morgan Stanley Investment Management’s Total Return Bond Fund.
Another worrying sign this week was the decline in the dollar, which fell by 0.9%, while a basket of currencies represents its main trading partner. Each currency in 10 countries rose against the US dollar, further pointing to stay away from U.S. assets.
Given the role of the US dollar as a safe haven for the global financial system, the sale of government bonds and stocks is also a rare combination.
Despite the stock market close to bear markets, Mr. Trump said it was the bond market that looked “annoying” that prompted him to suspend the worst tariffs in most countries on Wednesday.
“The big risk elephant in the room is the fiscal market,” Egan said.
Fed officials have admitted to the recent marches, but have not yet appeared too shocked. Susan Collins, president of the Federal Reserve in Boston, said the market “continues to be working well.” She said that although she added that the central bank would be “absolutely prepared” to step in, there were no “liquidity issues” overall if needed.
For investors, the move echoes wild price volatility with the sell-off caused by the pandemic in March 2020, which followed the volatility in September 2019. These events shocked investors and prompted the Federal Reserve to intervene quickly to stabilize the market.
This time, the Fed’s position is even more tricky. The inflationary effect of tariffs is worth keeping high interest rates by central banks. However, this will provide greater support for financial markets and economic growth to lower interest rates, which central banks have resisted so far.
On Friday, a widely viewed consumer sentiment volume fell to its lowest level in about three years. Expectations that inflation will soar in 12 months underscore the Fed’s challenge.
Meanwhile, the chaos this week was implemented, followed by a partial probation on global tariffs, followed by an escalating trade war between the United States and China, leaving global investors uncertain about relying on the treasury market, or even the dollar, as a source of security and stability.
Foreign investors are one of the largest holders of U.S. government debt. According to official data, Japan is the largest, worth more than $1 trillion in U.S. Treasury debt. China’s second largest holdings of $760 billion in Treasury bonds since 2021 have cut its holdings by a quarter.
“Wake up people,” Andrew Brenner, a senior bond trader and head of international fixed income at National Alliance Securities, wrote in a short email. “Due to tariff policies, this is the exit from the treasury market.”
Some analysts and investors worry that foreign investors are selling faster and may drive our treasury yields and as their interest rates are even higher.
“Fighting with major trading partners, who are also funding your debt is especially risky, and there is a large fiscal deficit and no reliable plan to control the debt,” Mr Eagan said.
Alternatives around the world also benefit a lot. Germany recently announced plans to invest through new debt. The country’s bond market is regarded as a European benchmark and is often compared with the fiscal market.
The difference or difference between yields in 10-year German grocery stores and 10-year treasury has narrowed due to concerns about the initial holding of tariffs, as investors seek US safe havens.
This quickly turned around.
