Tariffs Spark 36 Basis Point Surge in 30-Year U.S. Treasury Yields

Treasury yields have surged in response to the Trump administration’s tariffs, which have triggered a significant selloff in the U.S. bond market. The 10-year yield has risen to around 4.47%, while the 30-year yield nears 5%, marking a notable shift from the more stable levels observed earlier this year. This surge in yields is primarily driven by hedge funds' forced unwinding of basis trades, which have come under stress due to rising volatility and margin calls, accelerating the selloff.

The tariffs have also reignited inflation concerns, as higher import costs are expected to drive up consumer prices. This has prompted investors to demand higher yields to offset the anticipated erosion of purchasing power, complicating the Federal Reserve’s policy outlook. The Fed now faces the challenge of addressing inflation risk while avoiding a deeper economic slowdown. Additionally, there are concerns that foreign holders of U.S. debt, particularly China, may cut back on Treasury purchases in response to the tariffs, further weakening demand and pushing yields even higher.

The yield surge underscores the market’s sensitivity to policy shocks and leverage-driven flows. It also highlights the broader economic risks of aggressive trade actions in a fragile macro environment. The bond market selloff was not limited to the U.S., as yields on government bonds in other regions also experienced significant increases. The yield on a 30-year UK gilt hit 5.518%, up 16 basis points and surpassing a previous 27-year high, attributed to the ongoing trade war and resulting global market uncertainty.

The U.S. Treasury Secretary expressed optimism that the bond market would stabilize after the selloff. However, the market's reaction to the tariffs and the resulting inflation concerns suggested that the situation remained far from stable. The yield on 30-year U.S. Treasuries surged by 36 basis points in just two days, one of its biggest two-day increases in recent history. This sharp rise in yields was a clear indication of the market's concern about the potential impact of tariffs on the economy.

The tariffs, which included a 104% tariff on Chinese goods, were seen as a potential catalyst for higher inflation and economic instability. Investors raced to pull money out of the bond market, leading to a selloff that sent shockwaves across the global market. The selloff was driven by fears that the tariffs would push up consumer prices, making it harder for the Federal Reserve to cut rates without exacerbating the inflation problem. The resulting uncertainty in the market led to a surge in Treasury yields, as investors sought to protect themselves from the potential impact of higher inflation and economic instability.