US bond market on the verge of ‘meltdown’ as Treasury yields spike
US government bonds have entered a “meltdown” as long-yield Treasuries briefly reached over five per cent last night amid market panic over Donald Trump’s tariffs.
US 30-year Treasury yields spiked briefly above five per cent last night, before settling at 4.9 per cent, up from 4.45 per cent before Trump unveiled his tariffs.
The last time the 30-year US Treasury yield rose this much in three years was January 1982, when yields were 14 per cent.
The 10-year yield, a global benchmark for borrowing costs, jumped to 4.51 per cent before easing to 4.44 per cent.
Spencer Hakimian, founder of hedge fund Tolou Capital Management, termed the bond market’s performance a “meltdown”.
Others have compared it to Trump’s “Liz Truss moment“, after the former prime minister sent the government bond market spiking over fears of her unfunded tax cuts.
Trump has said he was aiming to push down Treasury yields, making it cheaper to refinance US government debt.
Over the weekend, the president reposted a video that claimed he was trying to “purposefully” crash the economy to bring Treasury yields down.
While government bonds are traditionally seen as safe assets, analysts have suggested that some positions are being exited to cover losses elsewhere in the markets, squeezing liquidity.
A popular bet among hedge funds is that Treasuries will outperform interest rate swaps, but as banks are currently selling bonds to raise cash for clients withdrawing their money in a panic, swap rates are being pushed far below yields.
Meanwhile, others have stated that Trump’s erratic behaviour on tariffs may have damaged the credibility of the US government, leading to a spike in bond yields.
On Tuesday, a Treasury auction of three-year notes attracted weak demand, an ominous sign for the auction of $39bn worth of 10-year Treasuries later today and a 30-year auction on Thursday.
Analysts at Deutsche Bank explained that this “incredible aggressive selloff” suggested that the government bonds were “losing their traditional haven status”.
Pepperstone strategist Michael Brown also suggested that this “lack of desire to hold Treasuries” could point to signs that “institutional confidence in the US has continued to be eroded”.
However, AJ Bell investment director Russ Mould even noted that some had speculated that “China and other parties are dumping their holdings as a retaliatory tool”.
“Either way, the short-term is downright scary with Treasuries selling-off this aggressively in line with equities, and market dislocations popping up all over the place,” added Brown.