Treasuries are the standout play as Trump’s trade war heats up

Ye Xie

Sun, Mar 30, 2025, 12:00 PM 4 min read

(Bloomberg) — The intensifying global trade war is heightening risks of a sharp growth slowdown in the US and upending investors’ portfolios.

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Both stocks and bonds have been on a wild ride in the first three months of the year in reaction to President Donald Trump’s barrage of tariffs. But one thing is becoming clear in this backdrop: bonds are a better bet than stocks even as the dollar wavers as a safe haven.

US Treasuries have outperformed stocks this quarter, heading for a more than 2% gain, while the equity benchmark S&P 500 fell about 5%. It marks the first time since the onset of the pandemic in March 2020 that stocks fell, and bonds rose in a three-month period.

Barclays strategists led by Ajay Rajadhyaksha shifted their asset allocation view last week in favor of bonds over global equities for the first time in “several” quarters, saying that policy uncertainties pose “downside” risks to economic growth.

More than $5 trillion has evaporated from US stock market valuation since late February as Trump plans to impose reciprocal levies on trading partners on April 2 as part of his sweeping tariff push. His administration has also targeted sectors like automobiles and industrial metals, aimed at boosting American manufacturing and employment.

“If the equity market corrects lower, it tightens financial conditions,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. “And that’s good for bonds. You’d better be a buyer on weakness.”

In addition to tariffs, investors will turn their attention to Friday’s jobs report to get the latest read on the labor market. Economists are expecting a slowdown in payroll growth and a steady unemployment rate.

“We believe risks to yields are skewed to the downside if the employment data disappoints,” Subadra Rajappa, head of US rates strategy at Societe Generale, wrote in a Friday note.

The tentative return of the traditional correlation between stocks and bonds is a welcome relief for investors. It is after all the cornerstone of a 60/40 portfolio, a strategy which had largely been out of whack since 2022 when the post-pandemic inflation surge hammered both stocks and bonds simultaneously.

Since bonds are offering investors “a real return,” with yields that are currently higher than inflation, “it’s an ideal thing to increase the allocation in an overall portfolio,” Earl Davis, head of fixed income at BMO Global Asset Management, said on Bloomberg Television.