Global markets are reeling over President Donald Trump’s haphazard approach to tariffs and an escalating trade war with China. Stocks have been volatile, and an unsettling shift has emerged in the bond market.
Earlier this week, as stock markets around the world declined, US Treasuries also sold off. Stocks and bonds declining in tandem raised red flags.
Typically, when investors sell off stocks in times of crisis, they pile into US Treasuries, seeking the safety of an asset backed by the full faith and credit of the US government.
Yet as stocks declined, investors abruptly sold off US Treasuries, raising questions about how much they value the promises made by the US government to pay its debts amid concerns about how tariffs will impact economic growth.
The sell-off in bonds was so unsettling that it spooked the White House.
“People were getting a little queasy,” Trump said Wednesday as he told reporters he was watching the bond market.
“The bond market is very tricky,” he said.
While previous outcry from Wall Street, economists and lawmakers had yet to make Trump step down on tariffs, it was the turmoil in the bond market that made him blink and delay many of his tariffs.
“The ‘blink’ came sooner than we expected, probably forced by the markets,” said Mohit Kumar, chief economist and strategist for Europe at Jefferies, in a note Thursday. “The reversal is in sharp contrast to the fanfare with which Trump unveiled his tariff policy just a week ago.”
The yield on the benchmark 10-year US Treasury note spiked as high as 4.5% on Wednesday. It was a whiplash reversal after falling below 4% and hitting its lowest level since October just days before. Yields and bond prices trade in opposite directions.
US Treasuries are considered one of the safest corners of the market. It’s where investors park their cash during economic turmoil and bouts of uncertainty. When stocks and bonds decline together, investors get spooked about broader economic stability. The trend is so unusual it’s associated with moments of extraordinary uncertainty, like the pandemic and the 2008 financial crisis.
Wall Street veterans were blunt about how the bond market forced Trump’s hand.
“The bond market spooked the president,” Ed Yardeni, president of Yardeni Research, told CNN’s Matt Egan. “Bond vigilantes were screaming that they weren’t happy with what was going on, and there was a potential for a recession.”
Bond vigilantes stare down Trump
Trump’s shift on his reciprocal tariffs serves as a stark reminder of the power and influence of the bond market — which can receive less attention than the stock market. While Trump watched stocks decline, it was a sell-off in Treasuries that forced him to move.
“The Bond Vigilantes have struck again,” Yardeni said in a note.
Bond vigilantes refer to investors who threaten to sell or refuse to buy government bonds, often to express dissatisfaction with government policy. Less demand for bonds means lower prices, which means higher yields — and a higher borrowing cost for the government.
It’s an example of how bond markets can signal to a government it must shift policy or face higher borrowing costs. For a recent example, just look at former
UK Prime Minister Liz Truss
.
Democratic political strategist
James Carville famously said
in the 1990s: “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”
National Economic Council Director Kevin Hassett said bond markets played a role in Trump’s tariff pause Wednesday but did not cause “a panic move.”
“And I think you know, the fact that the bond market was telling us, ‘Hey, it’s probably time to move,’ certainly would have contributed at least a little bit to that thinking, but it wasn’t the bond market that made a panic move,” Hassett told CNBC.
In a Fox Business interview Wednesday, Treasury Secretary Scott Bessent dismissed the moves in the bond market as “uncomfortable, but normal.”
Why the Treasury yield matters
UBS said Tuesday that investors were selling bonds to raise cash to cover losses on the stock market. Deutsche Bank said Wednesday that US government bonds may be “losing their traditional haven status.”
Whatever the case, the spike in yields alarmed market watchers.
The yield on the benchmark 10-year Treasury note is one of the key rates in the economy.
The 10-year yield strongly influences mortgage rates and underpins a range of other borrowing costs for everyday Americans, small businesses, startups, large corporations and more.
Bessent has been outspoken about his focus on the 10-year yield and his desire to see the yield come down.
But a higher rate sparked by Trump’s tariffs could be considered a self-own for the administration and could strain Americans trying to buy a home or take out a loan.
Uncertainty lingers
“The bond market right now is beautiful,” Trump declared Wednesday, after his tariff pause. But the bond vigilantes can strike again.
The 10-year yield settled above 4.4% Thursday — better than when yields rose above 4.5% early Wednesday, but still far above its dip below 4% last Friday, before yields spiked. It’s a sign that relief can be fleeting.
And after a historic rally on Wednesday, US stocks were lower again on Thursday.
Arun Sai, senior multi-asset strategist at Pictet Asset Management, said that investors see America as a less reliable place to put their money due to the damage the Trump administration is doing to the US economy.
“The whole Trump, Bessent, Lutnick grand plan is crumbling under the weight of its own inconsistency,” Sai told CNN’s Anna Cooban. (Howard Lutnick is the US secretary of commerce.)
“They’ve done significant damage to the notion that US assets are a safe haven for global capital,” Sai said.
Chip Hughey, managing director for fixed income at Truist Advisory Services, said hedge funds are also unwinding bets tied to Treasuries, which could be contributing to higher yields. Demand at an auction for 10-year Treasuries on Wednesday was strong, according to Hughey, and he thinks yields could fall more as hedge funds tie up their trades.
Trump’s tariffs have also raised concerns that international investors might sell their Treasuries as a negotiating tactic. And Hughey said that if there is less being imported into the US from its global trading partners, that could disrupt demand for US Treasuries. Less trade with the US means foreign investors have fewer dollars to buy US Treasuries.
The US dollar index, which measures the dollar’s strength against six major foreign currencies, tumbled 1.8% on Thursday, a possible warning sign about waning investor confidence in the United States.
“Our stock market is down. Bond yields are up and the dollar is declining. These are not the markers of successful policy,” Trump ally and investor Bill Ackman said in a
post on X
on Wednesday before Trump reversed his tariff policy.
“Bonds are signaling that the pause is significant, yet not much has fundamentally changed,” said ING analysts in a note to investors Thursday. “Markets will not easily forget these episodes with wide market swings.”
CNN’s Betsy Klein, Anna Cooban, Rob North and Matt Egan contributed reporting
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