As government bond yields are through the roof, the US financial landscape is completely upside down. This surge is indicative of increasing fear among investors, driven by escalating trade war rhetoric between the U.S. and China. The yield on the 10-year US Treasury bond just shot up by 0.16 percentage points. It now sits at 4.42%, a new pandemic high and the highest level since late February. The yield on the 30-year Treasury bond shot above 5% at one point. This high point hasn’t been touched since the end of 2023, and it ultimately leveled off at 4.9157%, which is 0.2 percentage points above Tuesday’s rate.
The historic US government bond sell-off is gripping the markets. No one wants to see a situation where the Federal Reserve has to come to the rescue of the market. There is increasing concern that those financial challenges from the US administration will get even worse. This fear is based on the prospect that China, which is invested heavily in US Treasuries, might decide to divest. As one of the world’s largest holders of these securities, China’s actions could have far-reaching implications for the US economy.
In response, China’s commerce ministry issued a sharp rebuke. They announced, “If the US side insists on continuing down the wrong path, China will fight to the end.” This assertion was seen as a direct response to such US tariffs and served to underscore the seriously escalating trade conflict between the two global economic titans.
As these positive developments continue – first seen last in July – the ongoing fallout is seen throughout international financial markets. The yield on UK 10-year gilts increased marginally to 4.69%, as two-year gilt yields fell to 3.92%. Analysts have interpreted these ups and downs as their best indicators of increasing fears over relations with Canada on trade. They fear these growing tensions will undermine future economic growth.
Calvin Yeoh, portfolio manager at Blue Edge Advisors, called the current environment “a fire sale of Treasuries.” He pointed to the distress and sense of crisis that are pushing investors to sell their bonds. Now, yields are surging as the market grapples with unprecedented uncertainty. Related Content Tariffs and their darkening effect on economic forecasts are on everybody’s lips.
Even as US markets faced increased volatility and uncertainty, Chinese stock exchanges have thrived. The Shanghai Stock Exchange (SSE) composite index finished the day with a respectable gain of 1.1%. By comparison, Shenzhen SE composite index continued booming by a striking 2.2%. These counter movements indicate that government interventions in China are not entirely ineffective at shoring up local markets even when facing gleeful external pressures to destabilize them.
Investors are increasingly wary of how tariff disputes have developed. In particular, they devote attention to China’s tough response to American overreach. Lin Jian, a spokesman for China’s foreign ministry, doubled down on the sentiment by saying, “We will not yield at any time when faced with threats.” Here, issuance of this declaration highlights China’s focus on fighting back against US-imposed tariffs and indicates that more extreme escalations still could be ahead.