Treasury Yields Climb as Trade War Fuels Exodus From US Assets

The rout, which was set off by the US trade war that’s shaken global markets, is threatening to deal another hit to the economy by pushing up borrowing costs more broadly. It also cast doubt on Treasuries’ status as the world’s safe haven as they slid along with the stock market this week, sending investors into other assets like the Swiss franc, gold and the Japanese yen.

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The yield on 10-year Treasuries — which are a benchmark for the cost of everything from corporate bonds to mortgages — rose as much as 16 basis points to nearly 4.6% Friday, a more than half-percentage point increase since the end of last week, before paring the jump later in the trading day. The 30-year rate climbed as much as 12 basis points to nearly 5% before pulling back as the selloff eased.

At the depths of Friday’s selloff, the 10-year yield was headed for it biggest five-day increase since 1982. Even after the rebound, it is still one of the biggest jumps in recent decades, rivaling those seen after the 2008 credit crisis and the 9/11 terrorist attacks.

“This is so scary. We are re-defining the risk-free rate of the world,” said Bhanu Baweja, chief strategist at UBS Group AG. “If you put volatility in the risk-free rate of the world, it will upend every market.”

President Donald Trump’s erratic tariff moves have led to wild swings in US government debt over the past week by not only undermining confidence in the economy, but also the direction of US policy and America’s standing in the world. That’s eroding appetite for US assets and is undermining the status of the federal government’s debt as the world’s most risk-free asset against which virtually everything else is priced.

The scale of the moves have spurred speculation that crucial overseas owners — like China — may retaliate by selling some of their securities, which would continue to put upward pressure on interest rates and the US government’s debt bills. Talk has also swirled about blowups in hedge fund trades and an exodus of foreign investors. 

“The issue facing the markets is a loss of confidence in US policy,” said Kathy Jones, chief fixed-income strategist at Charles Schwab. “The abrupt changes in tariff policy have caused leveraged trades to come undone and sent buyers to the sidelines.”

The drop in Treasury prices was accompanied by a sharp slide in the dollar, an indication that overseas investors are pulling back from the US. The Bloomberg Dollar Spot Index was down some 0.8% on Friday as it slid against all of its major counterparts. 

Investors also flocked to Europe in debt markets to escape the broader turmoil, leaving German yields largely unchanged in the week while the rate US 10-year debt surged more than 50 basis points. That’s the biggest underperformance of Treasuries compared to bunds since at least 1989, according to available data.

“To me, this looks like a buyer’s strike in the Treasury market and unloading of risk going into the weekend,” said Angelo Manolatos, a rates strategist at Wells Fargo. “Liquidity has been very challenging. Our metrics show that 10-year liquidity is at the most stressed levels since the regional bank failures in 2023.”

The surge in yields is sharply at odds with the Trump administration’s stated goal of pulling down long-term interest rates to provide relief to households and businesses. Treasury Secretary Scott Bessent had laid out the 10-year yield as a benchmark of Trump’s success, predicting it would come down as he reined in the deficit.

Last week, when yields initially dropped as turmoil raced through markets globally, Trump flagged the decline as a sign that “interest rates are down” and reposted a TikTok video that said Trump was intentionally crashing aid debt-saddled Americans. 

But as the bond selloff intensified this week, Trump called off many of his most punitive tariffs even as he kept escalating his conflict with China, threatening to significantly alter trade between the world’s two biggest economies. It provided only a brief respite for Treasuries.

Most bonds across maturities had returned to losses by the end of the week. Some of the retreat was also spurred by worries that the US deficit will swell if the US economy stalls and Trump cuts taxes, as he is already planning to do. 

The chaos led to a chorus of calls on Wall Street for the Federal Reserve to step in. On Friday, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he expected a “kerfuffle” in Treasuries.

“When you have a lot of volatile markets and very wide spreads and low liquidity in Treasuries, it affects all other capital markets,” Dimon said on an earnings call. “That’s the reason to do it, not as a favor to the banks.”

Others — including strategists at Deutsche Bank AG, Jefferies and Goldman Sachs Group — earlier this week also started noting that further moves, with yields flirting with a break above 5%, would warrant action from the Fed, though they differed on what officials ought to do.

George Saravelos, Deutsche Bank AG’s global head of FX strategy, said in a note the central bank should start buying bonds in what’s known as quantitative easing. Jefferies’ Thomas Simons said the Fed may be better off turning to tools it used in past crises, while Goldman Sachs strategists Bill Zu and William Marshall suggested liquidity injections or financial stability purchases.

With assistance from Ye Xie, Naomi Tajitsu, Alice Atkins, James Hirai, Michael Mackenzie and Jade Khatib.

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