Bonds Plummet as 10-Year Yield Surges Above 4.5% in Unexpected Turn That Concerns Wall Street
Traders work in the S&P 500 Index (SPX) options pit at the Cboe Global Markets exchange in Chicago, Illinois, US, on Tuesday, April 8, 2025. Jim Vondruska | Bloomberg | Getty Images
The bond market — rather than a declining stock market — is currently capturing attention on Wall Street as prices fall and yields surge. This unusual behavior is occurring amid rising recession fears, where fixed income is typically viewed as a reliable safe haven.
The 10-year Treasury yield soared 19 basis points to 4.45% and briefly exceeded 4.51% overnight. It has recovered to levels not seen since just before President Donald Trump’s tariff plan was announced last Wednesday and is currently at its highest point since February. Similarly, the 30-year Treasury yield reached a peak of 5.02% overnight, a level not witnessed since November 2023.
The 2-year Treasury yield also increased by 2 points to 3.76%. For reference, one basis point equals 0.01%. Yields and prices typically move in opposite directions.
Trump’s latest tariffs took effect overnight, resulting in a total rate of 104% on Chinese imports. In response, China retaliated early Wednesday, escalating trade tensions worldwide.
Since Trump initiated this trade conflict, equity prices have declined sharply, with the S&P 500 losing 12% in just four sessions amid growing concerns that this could lead to a recession.
Normally, a market sell-off and increasing economic downturn fears would prompt investors to flock to bonds for safety, causing yields to drop. However, that pattern has not materialized. The iShares 20+ year Treasury Bond ETF (TLT), a representative for long-term bond prices, is down 5% this week.
“Perhaps even more concerning, U.S. Treasury markets are undergoing a significant selloff as we go to press, reinforcing indications that they are losing their traditional safe-haven status,” stated Henry Allen, vice president and macro-strategist at Deutsche Bank, in a recent note.
Traders are exploring various theories to explain the situation, from forced selling by hedge funds facing margin calls to worries about foreign holders offloading U.S. government bonds.
A 10-year bond auction is set for later Wednesday, where the Treasury plans to sell $39 billion. This follows a weak demand at a Tuesday auction for a 3-year Treasury note. The largest holders of Treasuries, which are potential bidders in these auctions, include Japan, China, and the U.K., the very nations facing some of the highest tariffs.
“This is a trade war, and if countries can utilize their holdings of U.S. financial assets… then they can create complications,” noted David Zervos, chief market strategist for Jefferies, during Wednesday’s segment on CNBC.
The rise in yields poses challenges for both the Trump administration and the Federal Reserve. For some time, the White House may have found comfort in the idea that the chaotic rollout of tariffs was at least reducing rates, thus providing consumers with a buffer. However, rates have rebounded this week.
“Trump administration officials have been attributing the recent drop in bond yields and mortgage interest rates to their actions,” described Ed Yardeni of Yardeni Research in a note on Tuesday evening. “Unfortunately, the 10-year Treasury bond yield is now up.”
“What is driving this change? Fixed-income investors may be becoming concerned that the Chinese and other foreign investors could start selling their U.S. Treasuries,” added Yardeni.
Meanwhile, the Fed may be reluctant to lower rates given that tariffs globally are increasing inflation. However, they may be compelled to act if rates continue to rise and recession anxieties escalate. Even if a rate cut occurs, it might influence short-term rates but could inadvertently lead to a more significant spike in long-term rates as traders speculate that a more accommodating Fed could result in long-term inflation.
—With reporting by Sawdah Bhaimiya
