Bond market chaos as Treasury yields spike and investors fear safe-haven status is fading
Investors rattled as US yields surge unexpectedly (Illustrative photo: Getty Images)
The US bond market took center stage on Wall Street Wednesday as Treasury yields surged unexpectedly, raising alarm amid growing recession fears, reports CNBC.
The 10-year US Treasury yield jumped 11 basis points to 4.37% and briefly exceeded 4.51% overnight - its highest level since February and a sharp rebound from under 3.9% just last week.
The 30-year yield also climbed, hitting 5.02% overnight - a level not seen since November 2023. Meanwhile, the 2-year yield inched up to 3.76%. Yields rise as bond prices fall.
The surge came as President Donald Trump’s sweeping tariffs on Chinese imports took effect, with rates reaching as high as 104%.
In response, China condemned the move as "hegemonic" and "bullying," calling on the global community to resist what state media described as "trade tyranny." Beijing is now seeking cooperation with Japan, South Korea, and the EU to defend free trade.
As global tensions escalate, stock markets are tumbling - the S&P 500 has dropped 12% in just four sessions - but investors are not flocking to Treasuries as a safe haven, as would normally happen during a crisis.
Foreign selling fears shake bond market confidence
The iShares 20+ Year Treasury Bond ETF (TLT), a widely used proxy for long-term US bonds, has plummeted over 6% this week.
"Perhaps even more alarmingly, US Treasury markets are also experiencing an incredibly aggressive selloff as we go to press, adding to the evidence that they’re losing their traditional haven status," wrote Henry Allen, vice president and macro-strategist at Deutsche Bank.
Among the theories circulating on Wall Street are margin calls triggering forced selling by hedge funds, and a more troubling possibility: that foreign holders like China and Japan are dumping US government debt.
These countries, along with the UK, are not only major bondholders but also top targets of the new US tariffs.
"This is a trade war and if countries can use their stock of US financial assets that they’ve accumulated ... then they can create some problems," warned David Zervos, chief market strategist at Jefferies.
While the Trump administration had previously taken credit for falling interest rates and bond yields, that narrative is now shifting.
"Trump administration officials have been taking credit for the recent drop in bond yields and mortgage interest rates," wrote Ed Yardeni of Yardeni Research. "Unfortunately, the 10-year Treasury bond yield is up."
If the sell-off continues, both the Federal Reserve and the White House could be forced to reckon with a wave of economic and geopolitical instability.
