Dramatic Selloff Of U.S. Bonds Hits, Investors Worried About U.S. Economy

On Wednesday, in an apparent response to the latest tariff increase by President Donald Trump on China to 104%, the yield – or interest rate – on the benchmark 10-year U.S. Treasury bond rose again, possibly spurring a cut in interest rates by the Federal Reserve.

“The exodus from longer-dated US Treasuries accelerated, fueling the biggest selloff since 2020 in what are supposed to be the world’s safest assets,” Yahoo Finance reported. U.S. Bonds are backed by the government, and the U.S. economy has been the strongest in the world for decades, so investors think the government will not default on them, making them a safe proposition. But they become less valuable as inflation rises, and some investors have been voicing concern that inflation may well result if President Trump’s tariffs are too harsh and are left in place.

On Monday, JP Morgan Chase CEO Jamie Dimon warned of inflationary pressure, saying, “Whatever you think of the legitimate reasons for the newly announced tariffs — and, of course, there are some — or the long-term effect, good or bad, there are likely to be important short-term effects. We are likely to see inflationary outcomes, not only on imported goods but on domestic prices, as input costs rise and demand increases for domestic products. Whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth.”

“This is a fire sale of Treasuries,” Calvin Yeoh of Blue Edge Advisors said. “I haven’t seen moves or volatility of this size since the chaos of the pandemic.”

A dramatic selloff of U.S. bonds resulted on Wednesday as investors seemingly lost confidence in the American economy. “The 10-year Treasury yield has risen 36 basis points (bps) to 4.35% this week alone as prices fall sharply. If sustained, that would mark the biggest weekly jump since 2013,” Reuters noted. “The yield on a 30-year bond briefly traded above 5 percent,” The New York Times added.

“Markets are pricing a growing probability of an emergency [interest rate] cut, just as we saw during the Covid turmoil and the height of the GFC [global financial crisis] in 2008,” Jim Reid of Deutsche Bank stated.

“There is a temporary ‘buyer’s strike’ in the US bond market,” Homin Lee Lombard Odier Ltd. theorized. “If the situation becomes more worrisome the US Fed will have some tools it can utilize for market stability.”