U.S. Treasury Yields Surge to Decade Highs Amid Tariff-Driven Market Chaos

The U.S. bond market’s latest turmoil has rewritten the playbook for investors, with benchmark Treasury yields surging to decade highs in April 2025 as President Trump’s escalating tariff war upended traditional safe-haven dynamics. The 10-year Treasury yield climbed to nearly 4.6% by late April—its highest since February—while the 30-year yield spiked to 5.02%, its peak since November 2023. The 30-year note’s single-day jump on April 3 marked its largest since 1982, according to UBS economist Paul Donovan, as markets grappled with the geopolitical and economic fallout of tariff policies.

The crisis began when Trump’s April 2 “reciprocal” tariff threats triggered a market reaction that defied expectations. Instead of investors flocking to Treasuries as a safe haven, yields surged. The 10-year yield jumped to 4.34% by April 9, reversing a brief dip to 3.96% after a temporary tariff pause. This inversion of historical correlations—stocks and bonds falling simultaneously—signaled a broader loss of confidence in U.S. assets.

Hedge funds amplified the sell-off by unwinding leveraged “basis trades,” which involve borrowing Treasury futures to exploit price gaps between cash bonds and futures contracts. As yields rose, margin calls forced liquidations, creating a feedback loop of falling prices. “The repo market’s liquidity dried up faster than in 2019 or 2020,” said one trader, noting that short-term borrowing rates for Treasuries spiked to 5.2%, their highest since 2008.

Foreign investors, particularly China and Japan—the top holders of U.S. debt—also retreated. Tariff policies had already reduced their trade surpluses, diminishing their appetite for Treasuries. Japan’s holdings of U.S. Treasuries fell by $20 billion in March 2025 alone, according to Treasury International Capital data. Meanwhile, the U.S. dollar plunged 1% against the euro and 3% against the yen in the week of April 3, eroding its safe-haven appeal.

The Federal Reserve faced a critical crossroads. While inflation had cooled to 2.4% in March, market turbulence raised fears of a liquidity crunch. Yet political pressures limited the Fed’s ability to act as a backstop, with critics framing interventions as “bailouts” for speculative hedge funds. The delay in easing monetary policy further fueled uncertainty, pushing yields higher.

Global markets mirrored the chaos. German Bund yields, typically inversely correlated with Treasuries, jumped 40 basis points in a week—their largest weekly rise since 2020. Gold prices surged 8% as investors sought alternatives, while emerging-market bonds faced indiscriminate selling. Deutsche Bank warned that the episode highlighted the “erosion of Treasuries’ haven status,” a shift with lasting implications for global finance.

By April 9, the administration paused tariffs on non-Chinese goods, but China-specific levies rose to 145%, prolonging uncertainty. Analysts now question whether Treasuries can ever regain their former safe-haven role. With the 10-year yield up 50 basis points in a week—the largest weekly rise since 1987—and the 30-year yield up 60 basis points, the episode underscores a fragile financial landscape.

Conclusion
The April 2025 Treasury selloff was a watershed moment. It exposed the vulnerability of U.S. debt markets to geopolitical shocks and policy missteps, with yields spiking despite low inflation—a scenario once deemed impossible. Investors now face a new reality: Treasuries are no longer a guaranteed haven in times of crisis. The 145% tariffs on China and the Fed’s reluctance to intervene have deepened market skepticism, pushing 30-year yields to levels unseen in over a year.

Deutsche Bank’s warning—that Treasuries’ safe-haven status is “diminishing”—is a stark reminder of the risks ahead. If foreign buyers continue to retreat and domestic liquidity pressures persist, even small market shocks could trigger cascading crises. For investors, the lesson is clear: diversification beyond U.S. debt and vigilance toward geopolitical risks are now necessities, not luxuries. The era of passive Treasury accumulation is over.