US Government Bonds Suffer Dramatic Sell-Off as Tariff War Panic Deepens
A dramatic sell-off of US government bonds has sent shockwaves through global financial markets, as investors grow increasingly anxious about the escalating tariff war between the United States and China. The traditionally safe-haven asset has seen its value plummet, with yields surging to their highest levels in months.
According to reports from The Guardian, the yield on the benchmark 10-year US Treasury bond rose to 4.516% on Wednesday before slipping back to 4.451%, up 0.14 percentage points on the day. The 30-year bond also saw a significant move, with its yield briefly jumping above 5% to its highest since late 2023, and was last trading at 4.899%, or 0.12 percentage points higher than Tuesday.
The falls suggest that investors are beginning to lose confidence in the US as a cornerstone of the global economy, as Donald Trump’s fresh wave of tariffs on dozens of economies came into force, including 104% levies against Chinese goods. This has led to a flight to safety, with investors dumping US government bonds and sending yields soaring.
The impact was also felt in the UK, where bonds came under pressure from investors, sending the cost of financing government borrowing to its highest level since 1998. The yield on a 30-year UK gilt hit 5.65%, surpassing a previous 27-year high of 5.472% set in January. Shorter-dated 10-year gilt yields were slightly higher at 4.78%, while two-year yields ticked down to 4%.
Analysts believe that the US Federal Reserve may need to step in to calm the markets. Jim Reid, at Deutsche Bank, said: "Markets are pricing a growing probability of an emergency [interest rate] cut, just as we saw during the Covid turmoil and the height of the GFC [global financial crisis] in 2008." Calvin Yeoh, a portfolio manager at the hedge fund Blue Edge Advisors, described the sell-off as a "fire sale of Treasuries", adding that he hadn’t seen moves or volatility of this size since the chaos of the pandemic in 2020.
The turmoil in global markets has also had a significant impact on stock markets, with Japan’s Nikkei benchmark index falling almost 4%, while Taiwan’s benchmark stock index was 5.8% lower. Hong Kong’s Hang Seng index recouped some earlier falls to close 0.4% down, and South Korea’s Kospi 200 index dropped by 1.8%. However, China’s stock markets appeared to weather the storm, with the SSE composite index in Shanghai ending the day 1.1% higher, while the Shenzhen SE composite rose 2.2%.
As the situation continues to unfold, investors are growing increasingly concerned about the potential consequences of a prolonged trade war between the US and China. The Chinese foreign ministry has warned that it will "fight to the end" if the US side is "bent on going down the wrong path". The commerce ministry has also promised further countermeasures, adding to the uncertainty and anxiety in global markets.
The sell-off in US government bonds has also raised concerns about the potential impact on the global economy. With yields surging and prices falling, investors are seeking safe-havens and reducing their exposure to riskier assets. As the situation continues to deteriorate, it remains to be seen how the US Federal Reserve will respond to the growing market volatility.
The market turmoil has significant implications for the UK government, which is already struggling to prevent its budget plans from being wrecked by a panic on global markets. The chancellor, Rachel Reeves, will be closely watching the developments as the cost of borrowing increases, making it more difficult to fund investment.
The falls in US government bonds and UK gilts have also sparked concerns about the potential for a broader market sell-off. As The Guardian reports, analysts are warning of a potential "perfect storm" of economic uncertainty, with the ongoing trade tensions between the US and China set to continue to weigh on global markets.
In Europe, the major markets also fell back, with the FTSE 100 dropping by 3% on Wednesday, immediately undoing the gains on Tuesday. Germany’s Dax index dropped by about 2.3%, leading to a 16% drop since 18 March, while France’s Cac 40 fell by 3.3%. Spain’s Ibex index was down by 2.2%.
The sell-off in US government bonds and UK gilts is a clear indication of the growing anxiety among investors about the escalating trade tensions between the US and China. As the situation continues to unfold, it remains to be seen how the markets will respond and what measures will be taken to mitigate the impact of the trade war on the global economy.
The global economy is facing a critical juncture, with the ongoing trade tensions between the US and China set to continue to weigh on investor sentiment. The sell-off in US government bonds and UK gilts is a clear indication of the growing uncertainty and anxiety in the markets, and it remains to be seen how the situation will develop in the coming days and weeks.
The economic implications of the trade war are far-reaching, with many analysts warning of a potential recession if the tensions continue to escalate. As the situation continues to unfold, investors will be closely watching the US Federal Reserve and other central banks for signs of intervention to calm the markets.
With the global economy facing a critical juncture, investors are advised to exercise caution and closely monitor the developments in the trade war between the US and China. The sell-off in US government bonds and UK gilts is a clear indication of the growing uncertainty and anxiety in the markets, and it remains to be seen how the situation will develop in the coming days and weeks.
Sources:
The Guardian – Dramatic sell-off of US government bonds as tariff war panic deepens.
