Trump’s tariffs destabilize US bonds’ safe-haven status

​​​​​​​ WASHINGTON

President Donald Trump’s tariffs and fueling tensions with China brought economic uncertainties, destabilizing the safe-haven status of US bonds.

Trump’s reciprocal tariffs, announced April 2 that ranged between a 10% base rate to 50%, gave rise to volatility in global markets and shook the US bond market of around $29 trillion.

Recession concerns and rate cut expectations were triggered by the reciprocal tariffs, while stock markets declined across the globe due to the anxiety induced by the tariffs.

Ordinarily, investors sell stocks in uncertain times and seek safe-haven assets, and demand for US Treasuries rise. But the opposite was seen as equities fell and investors sold their Treasury bonds.

This week’s sell-off caused bond prices to fall and yields to rise as investor skepticism came to the fore -- some analysts said the unsettling changes in US Treasuries may be permanently damaging their safe-haven status.

The US Dollar Index fell more than 2% in five days to below 100.4.

As the demand for US Treasuries fell, the US 10-Year Bond yield rose 40 basis points in one week. After starting at 4% on Monday, it peaked at 4.51% on Wednesday and 4.43% on Thursday.

The 2-Year bond yield started the week at 3.66% and rose to 4.04% on Wednesday. It closed at 3.88% on Thursday.

The 30-Year bond began Monday at 4.42% and rose to 5.02% on Wednesday, ending Thursday at 4.86%.

Analysts said the movements in the bond market are reactions to Washington’s policies, while some compared it to the global dash-for-cash in March 2020, when the Fed had to intervene with a $1.6 trillion bond purchase.

Bond investors ease with tariff pause

Less than 24 hours after reciprocal tariffs went into force, Trump announced in a Truth Social post a 90-day tariff pause except for China, saying that more than 75 countries contacted him to negotiate trade barriers, tariffs, “currency manipulation” and more, and that those nations did not retaliate

He said he approved the pause but increased tariffs on China to 125%.

The pause eased concerns of investors and Trump told reporters that the bond market is good now after he issued the pause.

The backlash from Wall Street, politicians and economists on tariffs did not make Trump back down but the extreme volatility in the markets did. The demand for bonds in auctions held this week eased investors’ concerns at the same time.

Meanwhile, the US Consumer Price Index (CPI) fell 0.1% month-on-month in March and remained below estimates at 2.4% on an annual basis, according to the Department of Labor data on Thursday.

US Treasuries are crucial to the stability of financial markets in the US and across the globe, as governments finance their spending through revenues generated by taxes or by borrowing from bond markets. A sell-off in the bond markets leads to higher borrowing costs, affecting mortgages and loans.