A pullback from US Treasuries sent longer-term yields surging by the most since pandemic struck in 2020, deepening losses in what's supposed to be a haven from financial turmoil and roiling markets abroad as investors sell government bonds to raise cash.
The yield on 30-year Treasuries briefly pushed over 5% in Asia and seeped into other markets, with yields rising sharply in Australia, the UK and in the developing world. It pared the jump as the US trading day began and was up some 4 basis points — hovering around 4.8% — while stocks started staging a tentative recovery.
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By pushing up borrowing costs, the rise is threatening to deal another shock to a global economy already at risk of a recession as
"There's a bunch of things that have come into play" working against US Treasuries, said bond market veteran Greg Peters, who helps manage more than $800 billion as co-CIO at PGIM Fixed Income. "It's created a powerful unwind."
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The surge in yields, which affect everything from mortgage costs to loan rates, is working against what Treasury Secretary Scott Bessent had singled out as a key goal of Trump's economic policy — helping consumers by pulling down borrowing costs. He downplayed any worries of a systemic crisis in a television interview, saying it was "uncomfortable but normal deleveraging that's going on in the bond market," and he predicted it wouldn't persist.
The scale of the moves has fueled speculation that overseas investors may be selling bonds to retaliate against Trump for launching his trade war. Such investors are crucial to financing the US government's budget deficit, raising the specter of a buyers strike like the one that rapidly swept former UK Prime Minister Liz Truss from office when her fiscal plans unnerved investors.
Wednesday's sale by the Treasury of 10-year notes will now be closely-watched as a further test of sentiment.
"If we get a failed auction again today, this could the Liz Truss moment for the US," said Julian Brigden, co-founder of Macro Intelligence 2 Partners.
The fall in bond prices left investors without havens as European and Asian stocks tumbled again, with Europe's Stoxx 600 sinking about 3%. The equity selloff was snapped early in the US trading day, when indexes rebounded with a small gain.
The sharp and unusual spike in Treasury yields caught the most attention among traders, with theories running rampant about what could have been the cause given they usually fall when financial markets are stressed.
Part of the unease was a lackluster auction of three-year debt on Tuesday, which added to nervousness ahead of a $39 billion 10-year auction on Wednesday, and a 30-year sale Thursday.
Other traders pointed a deeper sense of worry and the possibility of hidden risks. Given the intensity of the selloff, some pointed to the potential of foreign selling of US debt.
Another theory has been that hedge funds being forced to rapidly unwind positions, like in the case of the basis-trade blow-up of 2020, might also be fueling additional market turmoil.
"We're going into a negative spiral that isn't going to end well as US exceptionalism keeps being discounted," said Sophie Huynh, a senior cross asset strategist at BNP Paribas Asset Management.
George Saravelos, global head of FX strategy at Deutsche Bank AG, warned "we entering unchartered territory in the global financial system" and that "if recent disruption in the US Treasury market continues we see no other option for the Fed but to step in with emergency purchases of US Treasuries to stabilize the bond market."
Some investors speculated that global reserve managers, for example China, could be re-evaluating their positions in US government debt given the seismic impact of Trump's trade policies. Both China and Japan had already been reducing their Treasuries holdings for some time, at least according to official data.
"This is an economic war," said Brigden. "It's absolutely the sell the US trade."
Not everyone thinks Treasuries have lost their haven appeal. Leah Traub, a money manager at Lord Abbett & Co. which oversees
"In the event of a US or global recession, we do still think investors will come back to Treasuries," she said.
A gauge of Treasuries' implied volatility has soared to its most extreme level since October 2023. Currency fluctuations are the highest in two years, and the VIX index sigals heightened stock volatility.
"There is a temporary 'buyer's strike' in the US bond market," said Homin Lee, a senior macro strategist at Lombard Odier Ltd. in Singapore. "If the situation becomes more worrisome the US Fed will have some tools it can utilize for market stability."
