US markets experienced chaotic trading after Trump’s tariff-fueled “Liberation Day,” with long-term Treasury yields surging 17 basis points to kick off the week. The 10-year yield (^TNX) rose from 3.87% to 4.21%, while the 30-year yield (^TYX) jumped 12 basis points, reaching 4.72%. Market veteran Jim Bianco noted that only three instances in 24 years have seen a similar surge.
Strategists point to various theories, including investors seeking liquidity and bond traders expressing confidence in the US economy avoiding recession. However, Nancy Tengler warned of “noise” in the market, while Steve Sosnick highlighted concerns about China’s potential boycott of US debt.
The surge in yields is attributed to a “stagflation” tug-of-war between slowing growth and higher inflation. As inflation rises, investors expect interest rates to tighten, leading to increased yields. The opposite effect occurs during times of slowing growth, as investors seek bonds to protect themselves from a deteriorating economy.
Sosnick suggested that the US Treasury may have to issue higher rates to replace lost demand from foreign buyers like China, which has been a significant buyer of Treasurys. If markets struggle to price low-risk assets, they will also face challenges pricing higher-risk assets.
As the market continues to navigate uncertainty, strategists emphasize the need for caution and continued monitoring of global economic trends.
Source: https://finance.yahoo.com/news/investors-grapple-with-bond-chaos-in-aftermath-of-president-trumps-liberation-day-192016217.html