Why US Treasuries Sell-Off Is Nightmare Scenario for the Economy
Story by Hugh Cameron
A swift and sharp sell-off in U.S. Treasuries is rattling global financial markets, shaking the foundation of what has long been considered one of the world's premier safe-haven assets.
Why It Matters
The U.S. Treasury market, valued at nearly $29 trillion, underpins everything from global reserves to corporate borrowing costs. Its stability is central to the functioning of the global financial system. A severe disruption in this market, like the current sell-off, could severely tighten financial conditions worldwide.
If confidence in Treasuries continues to erode, the U.S. may find itself paying more to finance its debt, exacerbating fiscal pressures at a time of persistent deficits and geopolitical tension.
Concern over the potential impacts of President Donald Trump's reciprocal tariffs, as well as retaliation from foreign trading partners, has rocked markets in recent days, with wider fears that their inflationary effects could push the U.S. economy closer toward a recession.
What To Know
U.S. Treasuries are debt securities issued by the U.S. Department of the Treasury to finance the federal government's spending when its revenues are insufficient to cover its expenses. Yields—the interest rate on Treasuries—spiked on Wednesday as Trump's reciprocal tariffs took effect, signaling that investors are offloading their government bonds in large numbers.
The yield on 10-year Treasuries jumped to more than 4.5 percent shortly after midnight, with 30-year yields surpassing 5 percent and two-year yields briefly reaching above 3.8 percent.
"U.S. government bonds were the safe-haven investment for the world's investors because they were seen as the rock in a turbulent world," said Paul De Grauwe, a professor in European political economy at the London School of Economics.
"Now the U.S. government is the preeminent source of turbulence and unpredictability. No wonder investors are looking for another rock."
The new reciprocal duties—aimed at eliminating trade deficits and reshoring American manufacturing—went into effect for dozens of countries on Wednesday. A 104-percent tariff on Chinese imports also began overnight, after Beijing missed the deadline to withdraw its 34-percent retaliatory tariff on U.S. goods.
Bloomberg reports that foreign reserve managers, including China, may be reconsidering their U.S. government debt holdings due to Trump's trade policies. Reuters noted that much of the selling was done by hedge funds to raise cash for margin calls, as the value of their portfolios continues to decline amid the ongoing market rout.
Reuters compared the sell-off to the 2020 "dash-for-cash" panic that prompted $1.6 trillion in emergency Federal Reserve purchases.
Similarly, British economist and former chief adviser to the Bank of England Charles Goodhart told Newsweek that the sudden sell-off could be tied to the continued drop in global stock prices.
"The technical problem is that the sharp decline in equity prices has required those who have levered up their position in equities to raise cash to meet margin calls, and that might have led them to sell [Treasury] bonds as the best way in these circumstances to meet cash requirements," Goodhart said.
"During the month of January, 10-year interest rates—which is probably the most important rate in the country, since mortgages and capital formation are based on it—had almost spiked to 5 percent," Treasury Secretary Scott Bessent said in a recent interview with Tucker Carlson. "And I think 5 percent can be an uncomfortable area for the economy, for [the] Treasury, for issuing bonds."
In an interview with Fox Business in early February, Bessent said that the administration would be paying close attention to the 10-year Treasury yields to assess when the Federal Reserve might cut interest rates.
The administration has been pushing the Federal Reserve to cut rates, but the potential inflationary impacts of Trump's tariffs could limit the central bank's ability to do so, Reuters reported.
With growing fears of "stagflation"—slow economic growth coupled with rising inflation—this creates a difficult situation for Fed Chairman Jerome Powell. To address slower growth, Fed officials can reduce the benchmark interest rate to make borrowing cheaper and boost investment. However, the central bank normally raises rates in order to combat inflationary pressures.
Meanwhile, the U.S. Dollar Index fell under 102 points for the first time since the presidential election.
What People Are Saying
Calvin Yeoh, portfolio manager at hedge fund Blue Edge Advisors Pte, told Bloomberg: "This is a fire-sale of Treasuries. I haven't seen moves or volatility of this size since the chaos of the pandemic in 2020."
British economist and former chief adviser to the Bank of England Charles Goodhart told Newsweek: "The longer-term structural problem is that the tariffs will raise U.S. inflation significantly, at a time when the administration wants to cut taxation sharply, is overestimating revenue from tariffs, and is trying to put pressure on the Fed to cut interest rates.
"In addition, what foreigners are likely to want to buy T[reasury] bonds now? So, the underlying structural condition looks to be one of increasing potential unsustainability of the U.S. fiscal position with a significant danger of accelerating inflation.
"Under these circumstances, U.S. T bonds will look increasingly risky over the medium to longer term, even if in the short run the [Federal Open Market Committee] cuts short-term interest rates quite sharply," he added. "A very sharply rising yield curve would then develop."
Paul De Grauwe, professor of political economy at the London School of Economics, told Newsweek: "If there is no quick reversal of economic policies, the U.S. Treasuries will indeed lose their safe-haven status. It will not come back soon, as the U.S. government is seen as unreliable much in the same way as governments of banana republics are."
"The Trump tariffs are one of the most spectacular self-harm decisions a government has made in history," he added. "It will lead to further negative effects for the U.S. economy. The sell-out of Treasuries is just one in a series of further self-inflicted economic negative events. A recession is now inevitable."
What Happens Next?
Trump's "reciprocal" tariffs on dozens of countries took effect on Wednesday. The administration has indicated that there will be no pause on the duties, though Trump has suggested that he may be open to cutting "fair deals," with certain countries.
為什麼美國公債拋售對經濟來說是一場惡夢
版主： 牛河梁
#2 Re: 為什麼美國公債拋售對經濟來說是一場惡夢
On Wednesday, April 9th, 2025, a significant sell-off in U.S. Treasury bonds occurred, with yields on the 10-year Treasury rising sharply, briefly exceeding 4.5%, amid concerns about the impact of President Trump's tariffs and China's retaliatory measures.
Here's a more detailed breakdown:
Trigger:
The sell-off was triggered by the implementation of President Trump's tariffs on goods from China and other countries, followed by China's retaliatory tariffs.
Yields Rise:
The yield on the 10-year Treasury bond, a benchmark for global borrowing costs, rose sharply, briefly hitting 4.5% before settling back to 4.37%.
Market Reaction:
Investors reacted by selling off U.S. government bonds, seeking safer assets, which led to a decline in bond prices and a rise in yields.
Concerns about Safe Haven Status:
The sell-off raised questions about the safe-haven status of U.S. Treasury bonds, as investors began to question their reliability during times of economic uncertainty.
Trade War Fallout:
The market's reaction is seen as a reflection of growing fears about the economic damage caused by the trade war, with some analysts suggesting that the US could be losing its position as a safe haven for global investors.
Hedge Funds Role:
Hedge funds are also seen as playing a role in the sell-off, with some analysts suggesting that they were unwinding positions that were betting on a widening of swap spreads.
Federal Reserve Concerns:
Some analysts believe that the Federal Reserve may need to intervene to calm the markets and prevent a further decline in bond prices.
Global Impact:
The sell-off in U.S. Treasury bonds has broader implications for global financial markets, with investors seeking alternative safe-haven assets.
Here's a more detailed breakdown:
Trigger:
The sell-off was triggered by the implementation of President Trump's tariffs on goods from China and other countries, followed by China's retaliatory tariffs.
Yields Rise:
The yield on the 10-year Treasury bond, a benchmark for global borrowing costs, rose sharply, briefly hitting 4.5% before settling back to 4.37%.
Market Reaction:
Investors reacted by selling off U.S. government bonds, seeking safer assets, which led to a decline in bond prices and a rise in yields.
Concerns about Safe Haven Status:
The sell-off raised questions about the safe-haven status of U.S. Treasury bonds, as investors began to question their reliability during times of economic uncertainty.
Trade War Fallout:
The market's reaction is seen as a reflection of growing fears about the economic damage caused by the trade war, with some analysts suggesting that the US could be losing its position as a safe haven for global investors.
Hedge Funds Role:
Hedge funds are also seen as playing a role in the sell-off, with some analysts suggesting that they were unwinding positions that were betting on a widening of swap spreads.
Federal Reserve Concerns:
Some analysts believe that the Federal Reserve may need to intervene to calm the markets and prevent a further decline in bond prices.
Global Impact:
The sell-off in U.S. Treasury bonds has broader implications for global financial markets, with investors seeking alternative safe-haven assets.
#3 Re: 為什麼美國公債拋售對經濟來說是一場惡夢
Historically, Treasurys rally in moments of stock market selloffs as investors rush to shift assets to a global safehaven, the longstanding status due to the safety and liquidity provided by the US market.
Watching the inverse play out, then accelerate after unexpectedly weak demand at the first Treasury Department auction to take place since Trump’s announced his tariff regime, led to growing alarm. The sharp selling of Treasurys – coupled with low demand for a sale of new US Treasury debt – sparked further concerns that foreign countries were abstaining from buying new US Treasurys and selling the debt they had. Because bond revenue pays for the cost of government programs that tax revenue doesn’t cover, worries abounded that Trump’s broader agenda was in jeopardy.
In a television interview Wednesday, Bessent dismissed the moves as “uncomfortable, but normal."
CNN 的爆料
Watching the inverse play out, then accelerate after unexpectedly weak demand at the first Treasury Department auction to take place since Trump’s announced his tariff regime, led to growing alarm. The sharp selling of Treasurys – coupled with low demand for a sale of new US Treasury debt – sparked further concerns that foreign countries were abstaining from buying new US Treasurys and selling the debt they had. Because bond revenue pays for the cost of government programs that tax revenue doesn’t cover, worries abounded that Trump’s broader agenda was in jeopardy.
In a television interview Wednesday, Bessent dismissed the moves as “uncomfortable, but normal."
CNN 的爆料