The bond market went haywire this week. Here's why that's a warning for the US and Trump.

Jennifer Sor

Sat, Apr 12, 2025, 9:00 AM 6 min read

• Intense volatility in the bond market this week helped drive the president to partly pause the trade war.

• A sell-off of US Treasurys pushed yields to their highest level since January.

• The spasm in the Treasury market—normally a safe haven—is a warning for the US and Trump.

The bond market sent a warning to Donald Trump this week.

A sharp sell-off in Treasurys—unusual in times when recession fears are high and stocks are cratering—had a hand in pushing the president to pause the steepest reciprocal tariffs for 90 days.

Yields, which move in the opposite direction of prices, shot up as the trade war escalated this month, with the 10-year and 30-year US Treasury yields hovering around 4.5% and 4.9% on Friday respectively.

It's the highest yields have been since February, shortly after Trump took office and sparked a tantrum in the bond market after first laying out his tariff plans.

While markets broadly have been volatile since Trump returned to the White House, such spikes in US government bond yields aren't normal.

It's a sign that investors may no longer be viewing government debt as a safe haven asset — something that could spell trouble for the stability of financial markets and future government funding, Wall Street experts say.

US Treasurys typically rally when equities sell-off and investors price in the risk of a recession. Treasurys, which are thought of as virtually risk-free, would usually rally in times like these, meaning yields would decline.

"This kind of thing just isn't supposed to happen for a market as large and liquid as US Treasuries," Ajay Rajadhyaksha, a managing director at Barclays, wrote in a note on Friday. "This is not normal."

"US Treasuries traditional role as a risk-asset diversifier is coming into question this week," researchers at Société Générale said.

There are a few reasons markets pros say the sell-off in bonds accelerated.

Foreign selling

Foreign investors have been dumping their holdings of US Treasurys in recent months, possibly out of reduced faith in the US or to get access to US dollars in the event that trade with the United States starts to narrow.

Foreign investors sold Treasurys for the third month in a row in January, with net holdings dropping $13.3 billion, according to data analyzed by SocGen.

Foreign official investors also dumped $24.1 billion in Treasurys that month after significant selling in December, marking the largest two-month stretch of selling since the pandemic, the bank said.