The exodus from longer-dated U.S. Treasuries accelerated, fuelling the biggest selloff since 2020 in what are supposed to be the world’s safest assets.
The yield on 30-year Treasuries briefly soared above 5% with investors increasingly worried President Donald Trump’s tariffs, which kicked into effect today, will send the economy into recession and limit the Federal Reserve’s ability to respond by also igniting inflation. While the selling eased into the European trading day, speculation continued to swirl about the reasons investors were turning their backs on U.S. sovereign debt.
“This is a fire sale of Treasuries,” said Calvin Yeoh, portfolio manager at hedge fund Blue Edge Advisors Pte. who is selling 20 to 30-year Treasuries futures. “I haven’t seen moves or volatility of this size since the chaos of the pandemic.”
In the past three trading sessions, the 30-year yield has jumped by about 40 basis points, or 0.4 percentage point, the biggest increase since November 2020. On Wednesday, the long-term rate was up two basis points to 4.79%, having earlier surged as much as 25 basis points.
The surge in long-term yields, which affect everything from mortgage costs to loan rates, draws into question Treasury Secretary Scott Bessent’s goal of bringing down borrowing costs to help consumers. U.S. bonds have long been the bastion in portfolio construction, with investors counting on America’s stability and wealth to anchor their holdings. Wednesday’s sale by the Treasury of 10-year notes will now be closely-watched as a further test of sentiment.
In other markets, European and Asian stocks tumbled again, with Europe’s Stoxx 600 sinking about 3%. However, S&P 500 futures were little changed. Some traders pointed to the fact that China hasn’t immediately responded to the new U.S. tariffs as some hint of a respite in the trade war. The dollar weakened and Brent crude dropped toward $60 a barrel.
Global bond yields also shot higher on Wednesday, with the U.K., Australia and Japan spiking as well.
But of all the moves, the sharp and unusual spike in Treasury yields caught the most attention among traders, with theories running rampant about what could have been the cause given they usually fall when financial markets are stressed.
Part of the unease was a lackluster auction of three-year debt on Tuesday, which added to nervousness ahead of a $39 billion 10-year auction on Wednesday, and a 30-year sale Thursday.
Other traders pointed a deeper sense of worry and the possibility of hidden risks. Given the intensity of the selloff, some pointed to the potential of foreign selling of U.S. debt and investors ditching whatever they can to quickly raise cash.
Another theory has been that hedge funds being forced to rapidly unwind positions, like in the case of the basis-trade blow-up of 2020, might also be fueling additional market turmoil. Some pointed to the abrupt collapse of a popular wager that Treasuries would perform better than interest-rate swaps.
“We’re going into a negative spiral that isn’t going to end well as U.S. exceptionalism keeps being discounted,” said Sophie Huynh, a senior cross asset strategist at BNP Paribas Asset Management.
George Saravelos, global head of FX strategy at Deutsche Bank AG, warned “we entering unchartered territory in the global financial system” and that “if recent disruption in the U.S. Treasury market continues we see no other option for the Fed but to step in with emergency purchases of U.S. Treasuries to stabilize the bond market.”
Some investors speculated that global reserve managers, for example China, could be re-evaluating their positions in U.S. government debt given the seismic impact of Trump’s trade policies. Such a move would send a strong signal that Treasuries are no longer the haven of old, but such trading is rarely telegraphed in real time. Both China and Japan have been reducing their Treasuries holdings for some time, at least according to official data.
“China may be selling them in retaliation for tariffs,” said Kenichiro Kitamura, general manager of Meiji Yasuda’s investment planning and research department in Tokyo. Treasuries “are moving due to political factors rather than supply and demand, so for the time being I will wait and see. It is difficult to get involved at the moment.”
Not everyone thinks Treasuries have lost their haven appeal. Leah Traub, a money manager at Lord Abbett & Co. which oversees $217 billion in assets, remembers their negative correlation to stocks in March when markets were reacting to fears of a U.S. growth slowdown.
“In the event of a U.S. or global recession, we do still think investors will come back to Treasuries,” she said.
A gauge of Treasuries’ implied volatility has soared to its most extreme level since October 2023. Currency fluctuations are the highest in two years, and the VIX index of equity volatility reached an eight-month high.
“There is a temporary ‘buyer’s strike’ in the U.S. bond market,” said Homin Lee, a senior macro strategist at Lombard Odier Ltd. in Singapore. “If the situation becomes more worrisome the U.S. Fed will have some tools it can utilize for market stability.”
--With assistance from Mia Glass, Masahiro Hidaka and Garfield Reynolds.
©2025 Bloomberg L.P.
