Following US President Donald Trump’s postponement of high imports tariffs on most nations for at least for 90 days on 10 April, longer-dated US Treasury bonds continued to sell off with 10-year yields now hovering at around 4.45%. That compares to a level of 4.17% at the close on April 1, the day before President Trump’s ‘Liberation Day’.
It appears that signs of stress in the US bond market finally led to the decision to postpone the ‘reciprocal’ tariffs. As yields of 10-year US Treasuries approached the level of 4.50%, PresidentTrump referred to the situation in the bond market in explaining his change of mind, saying “The bond market is very tricky, I was watching it . . . people were getting a little queasy.”
10-year Treasury yields jumped by more than 60bp in 48 hours this week. With prices of equities and bonds falling together, there were concerns over systemic risks. It may have been these concerns that led the administration to back down.
There have also been persistent rumours that China may be selling part of its holdings of US Treasury bonds. China has been one of the largest owners of US government debt, with holdings estimated to have reached $1.3 trillion in 2015. Currently, those holdings are estimated to have fallen to $759 billion, the lowest level since 2009.
Our sovereign bond team remains overweight US interest rate risk on the basis that US bond yields will fall as the negative economic impact of the tariffs on imports into the US becomes apparent. We are monitoring developments around the perception of the US Treasury market as a haven for investors closely.
