Why Everyone Is Watching the US Bond Market Right Now?
While global stock markets have calmed slightly after recent chaos triggered by U.S. trade tariffs, all eyes have now turned to a corner of finance that rarely steals headlines: the U.S. bond market.
Government bonds – essentially IOUs issued by states to raise money for public services – are typically a haven for investors during uncertain times. But in an unusual twist, the U.S. bond market has seen dramatic turbulence, raising serious concerns about the world’s largest economy.
What Are Government Bonds?
When a government needs to raise funds, it issues bonds – called "Treasuries" in the U.S. – which are bought by investors who receive regular interest payments. These payments are made over a pre-agreed period, with the full amount repaid when the bond "matures."
Investors include everything from pension funds to global central banks. U.S. government bonds are traditionally seen as among the safest financial assets in the world – until now.
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What’s Going On With U.S. Bonds?
After the announcement of U.S. tariffs on 2 April, investors initially fled volatile stocks and sought safety in bonds. But after the first tariffs were enacted on 5 April, and Trump doubled down on protectionist policies, things took a turn.
Rather than continuing to buy U.S. bonds, investors began selling them in large volumes. This sell-off drove down bond prices and sharply increased yields – the interest rate the government must pay to borrow.
The 10-year Treasury yield surged from 3.9% to 4.5%, while the 30-year yield approached 5%. These are massive shifts in a market where a 0.2% change is considered significant.
The reason? Investor confidence in the U.S. economy is crumbling. With tariffs expected to disrupt global trade and push up inflation, bonds no longer feel like a safe haven. As risk rises, so do the yields investors demand.
Why Does This Matter to Everyday Americans?
Higher bond yields might sound like an abstract problem, but the consequences are very real. When the U.S. government has to pay more to borrow, it impacts the federal budget and may lead to cuts in public spending.
More importantly, rising yields often push up interest rates on mortgages, credit cards, and business loans. That hits small businesses and first-time homebuyers the hardest.
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“When investors charge higher rates to lend the government money, other rates for lending that have more risk attached, such as mortgages, credit cards and car loans, also tend to rise,” says John Canavan, lead analyst at Oxford Economics.
As borrowing costs climb, consumer spending and business investment decline – slowing the economy and putting jobs at risk. Banks may also become more cautious in issuing loans, further tightening the economy.
Why Is Trump Paying Attention?
Trump initially dismissed the stock market's reaction to his tariff policies, urging Americans to “hang tough.” But the bond market reaction struck a nerve.
Following a weekend of escalating rhetoric, Trump suddenly announced a 90-day pause on increased tariffs for all countries except China. The 10% blanket tariff, however, still remains in place.
"Although President Donald Trump was able to resist the stock market sell-off, once the bond market began to weaken too, it was only a matter of time before he folded," says Paul Ashworth, chief North America economist at Capital Economics.
Reports suggest it was Treasury Secretary Scott Bessent – under intense pressure from business leaders – who finally persuaded Trump to ease off.
A US Mini-Budget Moment?
The turmoil in the U.S. bond market drew comparisons with the UK’s 2022 financial disaster under then-PM Liz Truss. Her unfunded tax cuts spooked investors, causing a bond market meltdown and a near-collapse of British pension funds.
Some analysts warned that the U.S. Federal Reserve could have been forced to step in if things had worsened further. While bond yields have since settled somewhat, they remain above pre-tariff levels.
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"Arguably the most worrying aspect of the [recent] turmoil... is an emerging risk premium in US Treasury bonds and the dollar, akin to what the UK experienced in 2022," says Jonas Goltermann of Capital Economics.
Luckily for U.S. homeowners, most hold long-term fixed-rate mortgages, meaning they won’t feel the impact immediately – unlike Brits who frequently renew short-term mortgage deals.
Is China Selling Off U.S. Bonds?
With $3 trillion added to foreign ownership of U.S. bonds since 2010, concerns have swirled that China – the second-largest holder of U.S. debt – might retaliate against tariffs by offloading U.S. bonds.
But experts say that’s unlikely. As Capital Economics explains, such a move "would impoverish China more than it would hurt the U.S." due to the deep interconnections between both economies.
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Final Thoughts
It’s astonishing to witness how economic policy can wreak havoc so quickly when placed in the wrong hands. The U.S. bond market is a bedrock of global finance, yet reckless decisions pushed it to the brink. Watching President Trump gamble with economic fundamentals is not just unsettling – it’s surreal. If the livelihoods of millions weren’t at stake, it might almost be laughable. Instead, it’s a cautionary tale of how fragile economic confidence can be, and how catastrophically it can crumble under poor leadership.
