Bond Market Turmoil: 30-Year Yield Surges 21 Basis Points to 5%

The bond market experienced significant turmoil late Tuesday evening, with the yield on the 30-year bond surging by 21 basis points to hit 5%. This sudden spike raised concerns about financial stability, as the bond market began to show signs of strain. The SOFR/IORB spread, a key indicator of the health of the bond/funding market, turned positive for the first time since quantitative tightening began, signaling potential issues in the monetary plumbing system.

President Trump and Treasury Secretary Scott Bessent were closely monitoring these developments. In response to the market turmoil, the Trump administration announced a 90-day pause on reciprocal tariffs on all countries except for China, which faced additional fees. This decision provided a much-needed reprieve and led to one of the largest single-day rallies in the market.

However, the market's relief was short-lived. US equities quickly gave back half of the gains from the previous day's rally, indicating that the fundamental issues in the bond market remained unresolved. The recent economic data, such as the negative month-over-month print on CPI inflation for March, did not have the expected positive impact on bond markets. This suggests that there are larger forces at play, and the bond market's issues are not easily addressed by short-term policy changes.

According to the chief US economist, the aggregate tariff impact on the economy as a whole is mostly the same; the risk just got transferred to China. This shift in risk highlights the complex interplay between monetary policy, trade policy, and market dynamics. The market's reaction to the Trump administration's decision underscores the need for a comprehensive approach to addressing the underlying issues in the bond market and the broader economy.