Bond Market Chaos: Yields Spike as Safe-Haven Status Comes Under Fire Amid Tariff Turmoil
Wall Street’s nerves are rattled — not by a plunging stock market, but by something far more unexpected: a dramatic sell-off in the bond market. Traditionally seen as a refuge during times of economic uncertainty, U.S. Treasuries are now experiencing steep declines in price and sharp rises in yields, challenging their status as the go-to safe haven during market turmoil.
Yields Surge Across the Curve
On Tuesday, the 10-year Treasury yield soared 19 basis points to 4.45%, briefly crossing the 4.51% mark overnight — its highest level since February. The 30-year Treasury yield also surged, peaking at 5.02%, a level not seen since November 2023. Meanwhile, the shorter 2-year yield ticked up by 2 basis points to 3.76%.
It’s an unusual trend. When fears of a recession escalate, investors typically pour into bonds, pushing yields lower. But this time, the opposite is happening — raising alarm bells across financial markets.
What’s Fueling the Sell-Off?
The shift in sentiment comes as President Donald Trump’s new round of tariffs — including a 104% cumulative rate on Chinese goods — took effect overnight. In response, China retaliated swiftly, escalating fears of a global trade war.
With equity markets already reeling — the S&P 500 has fallen 12% in just four trading sessions — the bond market is also under stress. The iShares 20+ Year Treasury Bond ETF (TLT), a benchmark for long-term U.S. bonds, has plummeted 5% this week alone.
“Even more alarmingly, U.S. Treasury markets are also experiencing an incredibly aggressive selloff,” said Henry Allen, VP and macro strategist at Deutsche Bank. “It adds to the evidence that they’re losing their traditional haven status.”
Theories Behind the Spike
Analysts are scrambling for explanations. Some suggest forced selling by hedge funds facing margin calls. Others speculate that foreign holders—particularly China, Japan, and the U.K., who are also trade targets—may be offloading U.S. government debt as a form of retaliation.
As a major $39 billion auction of 10-year bonds approaches, weak demand could exacerbate the problem. A lackluster 3-year note auction on Tuesday has already raised red flags.
“This is a trade war,” said David Zervos, chief market strategist at Jefferies, on CNBC’s Worldwide Exchange. “If countries decide to use their stockpile of U.S. financial assets to retaliate, they could cause real problems.”
Political and Monetary Implications
The yield spike poses a dual threat — not just to financial markets, but to the Trump administration and the Federal Reserve.
The White House had been touting recent drops in bond yields and mortgage rates as signs that its policies were cushioning the economy. But that narrative is now unraveling.
“Trump officials were taking credit for falling rates,” noted Ed Yardeni of Yardeni Research. “Unfortunately, the 10-year yield is back on the rise — and fast.”
Meanwhile, the Federal Reserve faces a policy dilemma. While it may want to cut interest rates to counter recession fears, doing so could backfire. Lower short-term rates might boost inflation expectations, leading long-term yields to rise even further.
Conclusion
The bond market is sending a loud and clear message: uncertainty is no longer enough to guarantee investor demand for Treasuries. With geopolitical tensions high and inflation risks brewing, the traditional rules may no longer apply.
