Treasuries Find a Brief Refuge in Tariff Truce as Markets Wrestle with Uncharted Trade Wars

On April 2, 2025, President Trump’s “Liberation Day” tariff announcement sent shockwaves through global markets, but the 90-day reprieve on steepest tariffs offered a fragile lifeline to investors. The pause, matched by the EU’s suspension of retaliatory duties, briefly halted a five-day Treasury selloff and lifted stocks from their nosedive. Yet beneath the surface, the U.S.-China trade war’s escalation underscored a precarious balancing act for investors: fleeting calm amid systemic risks.

The Tariff Truce: A Temporary Shield

The April 2 announcement introduced a 10% baseline tariff on all imports, with punitive rates for key trade partners (China: 54%, EU: 20%, South Korea: 25%). However, the 90-day delay on the steepest levies—a “Liberation Day” pause—provided critical breathing room.

Stock markets initially tanked, with Japan’s Nikkei 225 plummeting 4% and Europe’s Stoxx 600 shedding 1.3%. But by April 10, U.S. 10-year Treasury yields dropped to 4.386% from a peak of 4.51%, signaling a snapback in bond markets. The reprieve, coupled with a cooler-than-expected March inflation report (2.4% vs. 2.6% forecasts), eased fears of runaway borrowing costs.

The Fractured Trade Landscape

The truce was never universal. China retaliated by hiking tariffs on U.S. goods to 125%, while Taiwan bristled at its 32% rate, arguing its trade relationship with the U.S. was “complementary, not competitive.” Meanwhile, the EU’s criticism of Trump’s “master of the world” ambitions highlighted deeper fissures.

The U.S.-China dynamic proved decisive. By mid-April, the 10-year yield hovered near 4.4%, just below its April 9 peak, as investors grappled with escalating decoupling risks. Deutsche Bank analysts noted the “increased focus on U.S.-China escalation” as the primary driver of renewed yield pressure, with bond traders wary of prolonged trade uncertainty.

The Fragility of the Reprieve

While the truce offered temporary relief, systemic risks remained. Economists projected a $5,000 annual cost per U.S. household due to inflationary pressures, and gold prices hit record highs as a safe haven. The Treasury market’s volatility defied Trump’s goal of lowering borrowing costs: the 2-year yield fluctuated near 3.84%, reflecting fears of recession and forced bond selling.

The truce also exposed the administration’s policy whiplash. Trump’s abrupt reversals—from tariff threats to pauses—eroded investor trust. Treasury Secretary Scott Bessent’s promise of yield declines via fiscal reforms crumbled as markets focused on China’s 125% tariffs and supply chain disruptions.

Conclusion: Navigating the New Trade Reality

The tariff truce briefly reversed the Treasury selloff and steadied stocks, but it did little to resolve the underlying conflict. Key takeaways for investors:

1. Policy Volatility Dominates Markets: Trump’s unpredictable tactics have created a “genie out of the bottle” scenario, where markets swing on daily rhetoric.
2. U.S.-China Tensions Are the New Baseline: With tariffs on both sides now exceeding 100%, the risk of systemic economic decoupling demands hedging strategies, such as gold or defensive equities.
3. Recession Risks Are Mounting: The $5,000 household cost estimate and the Fed’s inflation struggles suggest a fragile growth outlook.

Investors must prepare for prolonged volatility. While the 90-day truce buys time for negotiations, the trade war’s escalation has rewritten the rules of global finance. As Deutsche Bank warned, “the truce is tactical, not strategic”—and markets will remain hostages to the next round of tariff theatrics.