US Treasury bonds no longer serve as a safe haven? Abnormal rise in yields triggers market concerns.

On April 2nd, US President Trump announced large-scale tariffs on almost all major trading partners, triggering intense volatility in the stock market. But what truly unsettled market participants was the US Treasury bonds, which were supposed to play a "safe haven" role in times of market turmoil. In particular, long-term Treasury bonds saw a historic surge in their yields. Typically, in times of financial market instability, investors flock to US treasuries for safety, pushing up bond prices and lowering yields. However, the situation this week was completely different. The 30-year US Treasury bond yield surged by 48.2 basis points to 4.873%, marking the largest weekly increase since April 24, 1987. The 10-year Treasury bond yield also jumped by 50 basis points to 4.492%, the largest weekly increase since November 16, 2001. Douglas Porter, Chief Economist at BMO Capital Markets, pointed out, "In general market panic, US Treasuries are usually a stable safe haven, but their performance is clearly unusual at the moment." Earlier this week, Trump announced a partial suspension of tariff plans in an attempt to ease market pressure, particularly in the bond market. However, this measure did not have a significant effect, and the bond market remained unsettled. Torsten Slok, Chief Economist at Apollo Global Management, analyzed that the surge in Treasury yields may be due to three factors: overseas selling of US Treasury bonds, increased risk hedging activities, and hedge funds unwinding "basis trades." Slok noted that the real reason might be a combination of these three factors. Hedge funds unwinding basis trades is a strategy that exploits price differences between futures contracts and cash government bonds. During periods of market tension, such trades may be forced to unwind due to rising financing costs or volatility, leading to a sharp increase in yields. Despite efforts by the US Treasury and officials to downplay the potential systemic risks, market concerns have not completely disappeared. Similarly unusual was the movement of the US dollar. This week, the ICE Dollar Index fell by 2.9%, hitting a three-year low. This phenomenon is not common during times of market turmoil, as the US dollar typically strengthens due to its reserve currency status. However, this time it showed signs of "capital flight." Porter from BMO added that besides concerns about basis trades, a broader "aversion to US assets" is forming, as evidenced by the sharp weakening of the US dollar. Tom di Galoma, Managing Director at Mischler Financial Group, suggested that the selling of US bonds may be nearing its end. He believes the Federal Reserve will be forced to resume rate cuts, as worries about economic recession outweigh concerns about tariffs causing inflation. Signs of rising mortgage defaults, slowing growth in airfare, and hotel prices indicate a weakening US economy. He predicts that the 10-year Treasury bond yield will retest recent lows of 3.9% and may eventually fall to 3%, as the US economy enters a recession. Despite the uncertainty in the market, the US stock market rebounded on Friday. The Dow Jones Industrial Average rose by 619.05 points, the S&P 500 index increased by 1.81%, and the Nasdaq index rose by 2.06%. All three major indices recorded gains for the week, experiencing significant volatility and sharp adjustments since the tariff policy announcement.