Words by ITV News Producer Alicia Curry
In a dramatic escalation of his “reciprocal” trade strategy, US President Donald Trump’s sweeping tariffs on over 60 countries have now come into effect, sending shockwaves through global markets.
With a staggering 104% levy on Chinese goods and new baseline tariffs of 10% on nearly all trade partners, the fallout has been swift and severe.
London’s FTSE opened with a significant 2.34% loss, while France’s CAC 40 fell 2.4% and Germany’s DAX dropped around 2.3%. In Asia, Japan’s Nikkei 225 tumbled more than 5%, with other regional markets also sliding as the latest round of Trump tariffs came into force.
But as global stock markets reel, it is the collapse of US government long bonds which is now sparking fresh concerns about the broader economic stability.
Here, ITV News explains what a long bond is and what it could mean for the world’s economic forecast.
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What is a government long bond?
A government long bond is a debt security issued by a government to raise funds for public services and investments.
When a government issues bonds, it borrows money from investors for a fixed period, typically ranging from 10 to 30 years, in exchange for regular interest payments over the life of the bond.
The principal amount is paid back at the bond’s maturity.
The yield on a bond, or the return that investors receive, is inversely related to its price.
When demand for bonds is low, their prices drop, which causes the yields to rise.
Conversely, when demand is high, bond prices go up and yields fall. In essence, when bond prices fall, yields rise, and when prices rise, yields fall.
In the case of US government long bonds, or Treasuries, the same principles apply.
Why do long bonds matter?
Long bonds, particularly in the US which is considered a safe haven economy for capital, are a good indicator for investor confidence.
Treasuries are considered safer investments, relative to stocks, because they are backed by the US government.
Typically, prices for the long bond drop when confidence is high, which causes yields to rise. This is because investors feel they can find higher-returning investments elsewhere and do not feel they need to play it safe.
When confidence is low, bond prices rise and yields fall as there is more demand for this safe investment. Put simply, falling yields indicate caution in the markets.
However, in the current economic climate, where Trump’s new tariffs have created a market of uncertainty, investors are selling off existing bonds as opposed to holding onto this traditionally safe asset.
Instability elsewhere in the economy is likely causing this. Investors may be covering their losses elsewhere, for example in tumbling stock prices, or for fear of the future economic landscape.
It could also be a marker that US Treasuries are losing their safe haven status.
Additionally, China, which is said to hold $760 billion of US debt might be selling their bonds in order to inflict more pain on the US government as part of the trade war.
What is happening to US Treasuries?
The yield – or interest rate – on the benchmark 10-year US Treasury bond rose by 0.16 percentage points on Wednesday to 4.42%, its highest since late February.
Meanwhile, the 30-year Treasury bond jumped above 5% to its highest since late 2023.
“This is a fire sale of Treasuries,” Calvin Yeoh, Blue Edge Advisors Portfolio Manager, told Bloomberg.
“I haven’t seen moves or volatility of this size since the chaos of the pandemic in 2020.”
What do long bonds tell us about the global economic forecast?
The losses in US Treasuries signal that investors are unloading even their safest assets.
Treasuries are traditionally seen as the cornerstone of the global financial system, and this collapse has raised concerns about market stability.
The sell-off in the $29 trillion Treasury market has caused their yields to rise, which, as a benchmark for other interest rates, pushes borrowing costs higher worldwide.
Many global financial instruments, including corporate bonds and loans, are priced based on Treasury yields.
As these yields increase, borrowing costs for governments, businesses, and consumers across the globe also rise.
Higher borrowing rates mean higher interest rates which lead to higher mortgage and loan payments, and reduced spending on public services.
Trump’s tariff fallout has therefore heightened pressure on central banks and policymakers to act swiftly to protect economies.
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