The financial system’s foundation experienced significant tremors this week, as government bond yields surged following the disorderly introduction of tariffs that shook investors’ confidence in the United States’ crucial role in the financial system. U.S. government bonds, including Treasuries issued by the U.S. Treasury, are typically regarded as some of the world’s safest and most stable investments, backed by the full faith of the American government. However, the Treasure market’s erratic behavior throughout the week has sparked concerns that investors are losing faith in U.S. assets due to President Trump’s escalating trade war.

The yield on the 10-year Treasury, a benchmark for corporate and consumer borrowing and considered the most significant interest rate globally, rose by approximately 0.1 percentage points on Friday, adding to sharp fluctuations throughout the week that pushed the yield up from less than 4 percent at the end of last week to around 4.5 percent. These seemingly minor increases represent large shifts in the Treasure market, prompting warnings from investors that Mr. Trump’s tariff policies are causing significant disruptions. The rise in yields affects consumers as well, as interest rates for mortgages and car loans are linked to the 10-year yield.

Apart from being a safe haven for investors during stock market volatility, the sudden and substantial increase in yields this week has made the bond market unusually risky for investors. A bond’s yield moves in the opposite direction of its price, so as yields rise unexpectedly, investors holding trillions of dollars in Treasuries see the value of their holdings decline. Furthermore, experts have noted the historic nature of rising yields on the 30-year long bond, considered a refuge for pension funds and insurance companies as they have future liabilities that require matching assets.

According to Ajay Rajadhyaksha, the bond market is currently in trouble, possibly due to speculations by Asian investors responding to tariffs and the potential unwinding of highly leveraged bets in the Treasure market. Significantly, the current movements in the bond market are far from normal and have reached unprecedented levels of volatility.

The shifts in demand for Treasury bonds, fixated by the Federal Reserve, seem to have less impact as one moves further away from their set rates. The movements indicate a substantial change in demand for long-term bonds. Such shifts should not typically impact the massive $30 trillion Treasury market, which reaffirms the severity of the current market changes.

Another concerning sign for investors has been the decline of the U.S. dollar, which dropped 0.9 percent against a basket of major trading partners on Friday. This rare combination of a weaker dollar and government bonds and stocks selling off has prompted a reevaluation of the dollar’s role as the global financial system’s safe haven.

The bond market’s instability has been a significant concern for Mr. Trump, who stated that the distressing bond market was the reason for his decision to postpone the worst of his tariffs for most countries. Officials at the Federal Reserve have recognized the gyrations, but have not yet appeared overly alarmed, stating that

Source: https://www.nytimes.com/2025/04/11/business/economy/treasury-bonds-tariffs.html