As the global trade war intensifies, global investors are selling US Treasuries, the world’s safe-haven benchmark. The US 10-year Treasury yield rose to roughly 4.5% on Wednesday, the highest level in six weeks, as investors assessed the impact of President Donald Trump’s tough tariff policy on the economy and inflation.
Yield go up when bond prices fall. If the US 10-year Treasury yield is rising, it means foreign investors are dumping Treasuries due to trade-related policy concerns.
Rising yields indicate that investors are selling even their safest assets as a worldwide market meltdown triggered by US tariffs takes an unsettling turn toward distress and a rush for cash protection.
“Whether this is participants selling down Treasuries to raise cash in order to meet their liquidity needs, or a representation of how institutional confidence in the US has continued to be eroded, remains to be seen,” says Michael Brown Senior Research Strategist at Pepperstone.
The yield is now 4.46%, up 59 basis points from Monday’s low, with traders reporting that hedge funds were the strongest sellers as they were forced to exit leveraged trades that profited from minor gaps between cash and futures prices in normal times.
Yield movements are highly dynamic and dependent on external factors. A declining yield also indicates a recessionary environment ahead. But, as of today, it is most likely liquidity concerns that are causing bond prices to fall.
Trump’s reciprocal tariffs came into effect today, including a cumulative 104% levy on Chinese imports. The market is disappointed by the lack of concrete developments in trade negotiations amid worries that an escalating global trade war could push the US economy into a recession.
The financial markets are in for interesting times ahead. With the prospect of a recession looming, the US Fed may resist cutting interest rates because tariffs could cause inflation.
Rising yields indicate that investors have lost faith in US Treasuries and that interest rates will remain higher for the foreseeable future. It’s no surprise that the markets anticipate a major event in which the equity market crisis will spill over into the bond and currency markets.