A Record Weekly Jump in Treasury Yields is Seen as Cash Flees the Market

The bond market experienced a dramatic selloff this past week, triggered by President Donald Trump’s intensifying trade war. As investors backed away from U.S. assets, yields on 10-year Treasury notes soared by half a percentage point, reaching 4.49%. This marked the steepest weekly jump in over 20 years and raised serious concerns about the potential economic fallout, including higher borrowing costs across the board.

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Typically seen as a global safe haven, U.S. Treasuries declined alongside stocks, undermining their reputation as the world’s most reliable assets. Investors, seeking refuge from the turbulence, redirected their capital into traditional safety plays such as the Japanese yen, gold, and the Swiss franc.

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On Friday, yields on 10-year Treasuries climbed an additional 6 basis points, completing their most significant weekly surge since the aftermath of the 9/11 attacks. These bonds serve as a foundation for consumer and business loans, including mortgages and corporate debt, so any spike in yields reverberates through the broader economy.

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UBS Group AG strategist Bhanu Baweja expressed alarm at the situation, noting, “We’re redefining what the global risk-free rate looks like.” When such a foundational asset becomes volatile, he explained, it can disrupt every other market.

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Trump’s unpredictable tariff strategy has triggered intense volatility in government debt. Beyond shaking investor confidence in the U.S. economy, it’s created deep uncertainty about the country’s policies and global position. For years, the strength and consistency of the U.S. economy had attracted worldwide investment. But that confidence has eroded quickly amid fears that Trump's aggressive trade stance could steer the nation toward a recession.

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The abrupt nature of Trump’s latest tariff announcements jolted Wall Street, which is now grappling with the possibility that foreign holders of U.S. debt—especially China—might retaliate by dumping their Treasury holdings. Such a move would increase interest rates and strain the government’s ability to manage its debt load. Speculation has also grown around hedge funds being forced to unwind long-standing trades, further fueling market instability.

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Kathy Jones, chief fixed-income strategist at Charles Schwab, pointed to the rapidly changing trade policies as a key factor: “Markets are dealing with a serious confidence crisis when it comes to U.S. policy.” The resulting volatility, she said, has disrupted leveraged trades and left many investors on the sidelines.

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The bond market’s decline coincided with a weakening dollar, another signal that global investors are pulling back from U.S. assets. In contrast, European debt markets remained relatively calm. German government bond yields, for example, stayed largely flat, while U.S. 10-year yields surged by more than 50 basis points—marking their worst performance relative to German bunds since 1989.

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Wells Fargo strategist Angelo Manolatos described the week as a buyer’s strike in the Treasury market, with investors unwilling to take on new risk heading into the weekend. “Liquidity is tight, and risk appetite is fading,” he said.

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The spike in bond yields also clashes with the Trump administration’s own goals. Officials have repeatedly voiced their desire to keep long-term rates low to support consumers and businesses. At one point, Treasury Secretary Scott Bessent even tied the success of Trump’s economic policies to a declining 10-year yield. Earlier in the week, as yields initially dipped during global turmoil, Trump posted a TikTok video celebrating falling interest rates, claiming they would benefit debt-ridden Americans.

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But when the bond selloff resumed with force, Trump reversed some of his tariff threats. Despite these efforts, investor sentiment remained sour. Yields on 30-year Treasuries also jumped nearly half a percentage point to 4.87%.

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Concerns are mounting that Trump’s planned tax cuts—paired with an economic slowdown—could swell the federal deficit. That would add even more pressure to the bond market.

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As the situation worsened, many on Wall Street began calling on the Federal Reserve to intervene. JPMorgan Chase CEO Jamie Dimon said the bond market was heading toward a “kerfuffle” that could spill into all areas of finance. “When volatility is high and Treasury markets are illiquid, it has a ripple effect on every capital market,” Dimon said.

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Strategists from Deutsche Bank, Jefferies, and Goldman Sachs also weighed in, suggesting that if yields approach or exceed 5%, the Fed may need to step in. Deutsche Bank’s George Saravelos advocated for renewed quantitative easing, while Jefferies’ Thomas Simons suggested turning to crisis-era tools. Goldman’s team proposed liquidity support or targeted asset purchases to maintain financial stability.

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While views differ on the best course of action, the message is clear: the Fed may be the only institution capable of calming markets if volatility persists.

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