On Treasurys’ Post-Tariff Ride

US Treasury yields have lurched in both directions since President Donald Trump announced a heftier-than-expected, bizarrely calculated slate of tariffs last week. But it was up moves earlier this week that had headlines asking: Are US Treasurys still a “safe haven” for investors? Many suggest yields should be falling at times like this. But slow down. Today’s rising yields are relatively small in scale and very short term, and a close look at both ends of the yield curve bucks headlines’ claims.

Rising US bond yields (and falling prices, which move inversely) have many folks concerned. Before President Trump’s “Liberation Day” announcement, 30- and 10-year Treasury yields sat around 4.5% and 4.2%, respectively.^[i] When the tariffs were unveiled, yields initially fell back, hitting 4.4% and 4.0% in the days thereafter. But they began rising. 30-year rates since rose to 4.9% while the 10-year touched 4.5% before cooling to around 4.3% on Thursday.^[ii]

Some tie this to foreign owners of US debt dumping their holdings, and hey, maybe some nations are doing this to an extent to raise capital. But that is speculation and anecdotal at this point. We won’t have exact data until the Treasury releases its next international capital flow report in May. But there are ways to test the claim. If capital were really pouring out of Treasurys to international investors’ home currencies, exchange rates would reflect it. They don’t. Most major currencies, like the euro, show little effect versus the dollar.^[iii] The Japanese yen has swung more but is still within its trading range of the last two years.^[iv] China’s yuan has barely budged. Japan and China are America’s two largest foreign debtholders.^[v] A huge selloff would likely have hit the dollar—not the case. Additionally, Uncle Sam auctioned some 10-year Treasurys Wednesday, and demand from “indirect bidders”—aka foreign investors—spiked. That doesn’t smell like foreign capital flight to us.

Either way, pundits’ biggest question remains: Why are yields up? This is based in conventional knowledge that, in a perceived crisis, investors often seek shelter in US dollar denominated-assets, chiefly government debt (called a flight to quality). America’s bond markets are the world’s deepest and most liquid, so nervy investors generally snap up US debt, lowering Treasury yields. For instance, we saw this during the eurozone debt crisis in the early 2010s and 2022’s regional bank collapses. Even in 2011, when everyone was freaking out over the US’s debt ceiling downgrade and a potential default, the preferred haven asset was US Treasurys.

Hence, if yields are rising now, bears claim, Treasury market fundamentals must be quite bad. But markets are much more complex than this. Yields at the long end of the yield curve are rising, but the short end is darned stable. Shorter-term debt tends to be the prime beneficiary of a flight to quality. Longer maturities tend to depend more on inflation expectations. When people broadly expect inflation to heat up, yields tend to rise—and vice versa. Right now, the vast majority of pundits deem tariffs (wrongly, in our view) inflationary, and the “Liberation Day” announcement rekindled hot inflation fears. This raised expectations for “higher for longer” Fed rates, which you can also see in higher pricing on inflation swaps (derivative contracts where one party swaps fixed-rate payments for floating-rate payments linked to an inflation index).^[vi] And this happened against a backdrop of relatively low liquidity, as hedge funds have significant short positions, which prompted some cash-raising. When investors need cash, they tend to reach for the easiest thing to sell: US Treasurys (and stocks).

So that very technical and nerdy (sorry) trip through markets’ plumbing argues against something being abnormally wrong. So does historical context. Folks, look again at the scale of the moves. We are talking about fractions of a percentage point. These aren’t huge, even on the less-traded 30-year. When you look beyond the past few months and the low-rate 2010s, you see yields’ climb thus far isn’t huge historically speaking. Exhibit 1 shows this, charting 30- and 10-year Treasury yields since 2000.

Exhibit 1: Treasury Yields Aren’t Sky High

Source: FactSet, as of 4/10/2025. 30-Year and 10-Year Treasury yield, constant maturity, daily, 12/31/1999 – 4/10/2025.

Relative to history, yields are still benign. Heck, 10-year yields are down since January, flat since stocks’ February high and still well below levels seen in 2023 and late 1990s. Such a small, short-term uptick shouldn’t warrant doom-and-gloom. This strikes us a classic myopic overreaction lacking longer-term context.

That said, some argue the selloff could continue amid the Trump administration’s erratic policy decisions. Several outlets questioned if Trump was having a “Liz Truss moment,” calling back to UK Gilts’ spike after Britain’s then-Prime Minister unveiled a spate of modest tax cuts in autumn 2022. But this is an apples to oranges comparison—bonds sold off then because the country’s over-leveraged pension funds were forced to unload Gilts to raise cash quickly and meet margin calls. That exacerbated what we think would otherwise have been a normal, fleeting sentiment reaction. That was a UK-specific issue tied to a specific pension tactic common there are the time.

Mind you, we can’t—and won’t—predict policy moves. But today’s tariffs and volatility don’t change the fact that US debt is still quite serviceable via tax receipts, which cover debt payments many times over. That doesn’t preclude more short-term volatility as tariff uncertainty continues and Congress debates taxes and the debt ceiling. But overall, we aren’t seeing some underlying crisis here.

Moreover, we wouldn’t sweat rumors of a foreign selloff. As we covered in our March reader mailbag, US debt is overwhelmingly held here. As of January, foreign ownership of US Treasury securities amounted to around $8.5 trillion, or about 23.5%.^[vii] Including Belgium, where it reportedly holds many of its Treasurys, China held 3.1% of total US government debt, its share having tumbled in recent years to little effect. The remaining 76.5% is owned by American investors (mutual funds, depository institutions, state and local governments, pension funds, insurance companies and individuals) and the Fed. If China elected to sell, we suspect plenty of buyers would line up to snap up those bonds. So even if a massive foreign selloff occurs (unlikely, considering it would skyrocket the selling country’s currency, which again, isn’t happening, and wreak havoc at home), it would probably be less painful than widely feared.

In our view, fear over bond yield volatility seems overdone. It is small historically and the US isn’t facing a plumbing emergency a la Britain in 2022. To us, this is a classic case of sentiment-fueled swings. Remember to keep perspective and scale when headlines panic.

H/T Research Analyst Wei Zhang