A rapid sell-off of U.S. government bonds this week has sent long-term interest rates soaring across the globe. The surge in yields, which began earlier in the week, picked up speed on Wednesday, shocking markets and raising questions about the future of Treasuries as a safe haven investment.
Investors are backing away from long-dated U.S. government debt—typically considered among the world’s safest assets—due to rising concerns over U.S. trade policies, inflation risks, and shifts in global debt holdings.
“This is a fire sale of Treasuries,” said Calvin Yeoh, portfolio manager at Blue Edge Advisors. “I haven’t seen moves or volatility like this since the pandemic chaos of 2020.”
Yields Reach Highest Levels Since 2023
The yield on 30-year U.S. Treasuries jumped by as much as 25 basis points—the largest three-day rise since 2020, according to Bloomberg data. That surge pushed rates to their highest point since November 2023.
Yields also rose sharply on bonds in Europe, Asia, and Australia. As U.S. Treasuries are a benchmark for global debt, these moves spilled into other government bond markets.
Curve-steepening—a pattern where long-term rates rise more than short-term ones—was also observed. This is often a sign that investors expect higher inflation and slower economic growth ahead.
Trade War Escalation Fuels Concerns
The sell-off came just as President Donald Trump imposed sweeping new tariffs on China and other major trading partners. These so-called “reciprocal tariffs” include levies as high as 104%, affecting countries with trade surpluses against the U.S.
The aggressive move reignited fears of a global economic slowdown. Higher tariffs can lead to stagflation—a mix of slow growth and high inflation—which could limit the Federal Reserve’s ability to lower interest rates.
“China may be selling Treasuries in retaliation for tariffs,” said Kenichiro Kitamura of Meiji Yasuda. “This move feels more political than economic. It’s hard to get involved in the market right now.”
Global Impact: Bonds, Currencies, and Stocks React
The bond turmoil hit other major economies. Japanese government bonds also tumbled, especially longer-dated ones. Market volatility has made Japanese investors more cautious, leading many to stay on the sidelines.
In Europe, German bunds were an exception—they held steady or gained slightly, helped by demand for safer assets outside the U.S.
At the same time, the U.S. dollar fell, even as yields rose. That unusual move boosted traditional safe-haven currencies like the Japanese yen and Swiss franc, both of which gained over 1%.
Stock markets in both the U.S. and Europe also slipped. Oil prices dropped as well, adding to fears that the economy is slowing.
Hedge Fund Pressure and Market Stress
One of the key drivers of the sell-off appears to be a breakdown in what’s known as the “basis trade.” This strategy, popular among hedge funds, takes advantage of small price gaps between Treasury bonds and futures. A similar collapse of this trade in 2020 caused severe disruptions in the bond market.
As in 2020, investors are now moving away from long-term bonds and shifting into short-term, cash-like assets. Demand for three-year U.S. notes was weak in this week’s auction, reinforcing the idea that traders prefer to avoid risk.
“There’s a temporary ‘buyer’s strike’ in the U.S. bond market,” said Homin Lee, macro strategist at Lombard Odier. “If things get worse, the Fed does have tools to help stabilize the market.”
Volatility Signals Investor Anxiety
A key index of Treasury market volatility has hit its highest level since October 2023. At the same time, the VIX index—a measure of expected stock market swings—climbed to an eight-month high.
Currency markets are also flashing warning signs. Exchange rate volatility has reached a two-year peak, driven by shifting policies, uncertain inflation data, and fears of further global instability.
Some Still See Treasuries as Safe
Despite the turmoil, some investors believe Treasuries will regain their safe-haven status if the U.S. or global economy slows down.
“In a recession, we still think Treasuries will attract buyers,” said Leah Traub of Lord Abbett & Co., which manages over $200 billion. She noted that in March, Treasuries performed well as stocks dropped, showing that the link to safety isn’t broken yet.
What Comes Next?
It’s still unclear whether this sell-off will continue or stabilize. Much depends on the next steps from the Federal Reserve, as well as global reactions to U.S. trade policies.
For now, investors are watching closely. Yields are up, risk is high, and markets are on edge.
