President Trump’s trade war has severely rattled markets, sending Treasury yields sharply higher.

Long deemed a cornerstone of global financial stability, U.S. Treasury bonds are facing an unusual wave of sell-offs as investors increasingly view them not as a safe haven, but rather a source of risks.

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Recent U.S. government moves, including “reciprocal tariffs” and the growing tensions between the White House and the Federal Reserve, have severely rattled markets, sending Treasury yields sharply higher.

What is particularly alarming to investors is that the bond rout has come alongside sharp declines in U.S. equities and a weakening dollar — a rare “triple whammy” in which stocks, bonds and the currency all fall together, challenging the traditional logic of safe-haven flows and underscoring a deep unease about the U.S. economic outlook.

WHY CURRENT U.S. TREASURY SELL-OFF UNUSUAL

U.S. Treasury bonds have long been viewed as safe-haven assets, enjoying capital inflows typically during stock market downturns. However, recently, all three major U.S. stock indexes in New York plunged amid tariff policy concerns, and Treasury bonds were sold off in parallel, pushing yields sharply higher.

On April 9, the 10-year Treasury yield surged to 4.5 percent, while the 30-year bond yield jumped nearly 60 basis points in three days, briefly topping 5 percent. After that, U.S. President Donald Trump’s intensifying pressure on the Fed to cut interest rates drove up the dipped yields. By Monday, the 10-year yield had once again exceeded 4.4 percent, and the 30-year rose past 4.9 percent.

“The sell-off may be signalling a regime shift whereby U.S. Treasuries are no longer the global fixed-income safe haven,” Financial Times cited Ben Wiltshire, a rates strategist at Citi, as saying.

Fears of stagflation or recession triggered by Trump’s tariff policy have prompted global investors to reduce exposure to dollar-denominated assets. Financial Times also noted the U.S. government’s failure to curb the rising bond yields — once a key policy goal — has shaken confidence in the world’s largest sovereign debt market.

Zhao Yue, chief economist at Hong Kong-based Chief Securities, said that U.S. new tariffs have forced institutional investors to downgrade economic and market forecasts, prompting broad portfolio reductions as well as declines in equities, bonds and the dollar.

WHY RISING TREASURY YIELDS SPELL TROUBLE

The Treasury sell-off is more than a market event by striking at the heart of U.S. government financing. Treasury bonds represent IOUs issued by the U.S. federal government to fund public expenditures. When prices fall and yields rise, it becomes more expensive to borrow money, as the Department of the Treasury has to raise coupon payments to attract buyers. That raises borrowing costs across the U.S. economy, since Treasury rates serve as a benchmark for market interest rates.

Xia Chun, chief economist at Hong Kong-based ApaH Capital Management, said the rising treasury yields push up funding costs for businesses and increase the recessionary pressure.

Brian Rehling, head of global fixed income strategy at Wells Fargo Investment Institute, said higher Treasury yields are driving up rates of mortgage, auto loan and other loans, directly affecting household finances. On Friday, the average 30-year mortgage rate in the U.S. rose to an eight-week high of 6.83 percent.

Analysts widely interpret Trump’s recent suspension of the “reciprocal tariffs” as responding to growing alarm over rising financing costs and the risk of broader economic fallout.

HOW “RECIPROCAL TARIFFS” DISRUPT FINANCING CHAIN OF U.S. TREASURY

The recent Treasury sell-offs have exposed long-standing structural issues of the U.S. debt market. In recent years, aggressive fiscal expansion by the U.S. federal government has led to a rapid increase in treasury issuance, while demand has failed to keep pace.

According to Xia of Hong Kong-based ApaH Capital Management, the sheer volume of outstanding U.S. debt means many sovereign wealth funds have already reached their foreign debt investment limits.

Zhao expects the Treasuries maturing in 2025 to hit a record high of over US$9 trillion. Recent issuance data indicate primary dealers were forced to absorb a large portion of newly issued bonds, with a marked reluctance among investors to take on additional U.S. debt.

Traditionally, the primary creditors of U.S. Treasuries are economies that run consistent trade surpluses with the United States. These surplus dollars are typically recycled into the purchase of Treasuries, facilitating capital inflows and financing the U.S. fiscal deficit.

However, the U.S. move to reduce trade deficit through “reciprocal tariffs” is undermining this mechanism. Shrinking trade surpluses prompt economies’ less willingness and capacity to purchase U.S. debt.

Xia notes that rising yields would typically support a stronger dollar, but the recent depreciation of the currency suggests capital is leaving the United States.

The declining financing capacity of the Treasury has significantly inflated the U.S. government’s interest expenses, further straining an already fragile fiscal position. U.S. federal debt has now surpassed US$36 trillion, with US$6.5 trillion in maturities due by June. Latest data show the federal budget deficit for the first half of fiscal year 2025 has already exceeded US$1.3 trillion dollars, the second-highest on record.

FALLING CONFIDENCE IN DOLLAR

The U.S. Dollar Index on Monday slid to a three-year low of 97.96 during intraday trading before closing at 98.278 points, below the 99 mark, indicating growing market concerns about the dollar’s future and its potential weaknesses.

Governor of the French central bank Francois Villeroy de Galhau has said Trump’s policies in recent weeks have eroded confidence in the U.S. dollar.

Already, many economies have begun their de-dollarization process, including cutting holdings of U.S. Treasury bonds, boosting gold reserves, shifting oil settlement currency, and exploring local currency swap and settlement mechanisms.

According to the Bank for International Settlements, the U.S. dollar’s share of global reserves has fallen from over 70 percent in 2000 to around 58 percent in recent years. The U.S. administration’s policies are encouraging de-dollarization, which is leading to a sell-off in U.S. Treasury bonds, said George Saravelos, global head of FX research at Deutsche Bank.

teleSUR/ JF

Source: Xinhua

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