The 10-year Treasury yield fell by over 10 basis points to 4.288% as of 4:50 a.m. ET on Wednesday, following significant shifts in the bond market. The 2-year Treasury yield fell by more than 10 bps. It ultimately closed at 3.841% for that span. This drop happened to occur on a day of significant volatility in the bond market that caused increased scrutiny from investors.
Alone climbed more than a quarter of a percentage point, ending Wednesday at 4.51%. This increase further illustrates the extreme volatility of prices and yields. The bond market was mostly driven by a shift in investor sentiment, with many investors choosing to sell off their positions in bonds. The first was mass selling, which drove prices down to reportedly low levels. Consequently, yields rose, illustrating the inverse relationship that often exists between these two variables.
That turbulence came to a head last week when former President Donald Trump declared a 90-day tariff “pause.” This freeze hurts each of the countries as a collective whole. Under this progressive new policy, the per ton tariff equivalent rate would instead be made consistent at a low 10% across all species. China is not part of this escape, with tariffs on its goods going up drastically, to 125%. The effects of the long-running trade war between the United States and China just keep giving, as this week’s investor behavior and market dynamics make clear.
Here are some very honest and informative insights from analysts at Deutsche Bank that describes the unprecedented and deeply dysfunctional current bond market. They argued that while some aerospace investors may benefit from the President’s tariff policy, a cloud of uncertainty remains.
“While there has been understandable relief as evidence of a Trump put reemerged following the extreme market conditions that we highlighted yesterday morning, the genie is still out of the bottle on policy unpredictability.” – Analysts at Deutsche Bank
Even Trump himself acknowledged that we’re in a very bad place with the bond market, and was delighted with continued hyperactive behavior.
“I was watching the bond market — the bond market is very tricky. But if you look at it right now it’s beautiful. The bond market right now is beautiful, but yeah I saw last night where people were getting a little queasy.” – Donald Trump
The bond market’s extraordinary volatility on Wednesday is a reminder of the strange and tenuous relationship between major geopolitical events and US financial markets. Investors are remaining on the sidelines as they wait for a new normal to play out. They’re monitoring closely as future tariffs and trade negotiation developments unfold.