Posted on 04/09/2025 5:26:37 AM PDT by Miami Rebel
Global bond markets were gripped by volatility on Wednesday, as the rollout of U.S. President Donald Trump’s reciprocal tariffs left investors scrambling to find safety as global equity markets resumed their sell-off.
U.S. Treasurys sold off on Wednesday as a new wave of duties came into force and China announced fresh retaliatory action, with the yield on the U.S. 10-year Treasury last seen trading 12 basis points higher at '4.382% while the 2-year was 4 basis points higher at 3.768%.
Bond yields and prices move in opposite directions, as investors demand a lower price on the bond and a higher return on their loan to lend to governments that they see as riskier holdings.
Across the Atlantic, longer-dated European government borrowing costs also rose. By 12:22 p.m. in London shortly after China’s announcement, the yield on French 10-year government bonds was 2 basis points higher, the Italian 10-year yield was up 6 basis points and the yield on British 10-year government bonds, known as gilts, was up 9 basis points.
The 30-year gilt yield jumped nearly 23 basis points to a fresh 27-year high.
Gilt yields are not only suffering spillover effects from the moves in Treasurys, but the gilt market is generally sensitive — relative to other high-grade bond markets — to catalysts that trigger yield rises given stretched margin calls from hedge funds, Diana Iovanel, senior markets economist at Capital Economics, told CNBC.
“It’s not too surprising to see more volatility in gilts than in other [developed market] government bonds against the risk-negative and highly uncertain global backdrop. Beyond that, the U.K.‘s stretched fiscal picture is arguably testing investors’ tolerance already,” she added.
Germany bucked the trend as its 10-year bund , seen as a benchmark for the euro zone, traded 2 basis points lower.
Shorter-dated bonds in Europe meanwhile rose in value. The yields on 2-year government bonds in France, Italy and Britain were 9, 6, and 4 basis points lower, respectively. The yield on Germany’s 2-year bunds dropped 12 basis points.
“One factor people are speculating about on Treasurys is around the ongoing theme of a move away from the U.S. dollar, of it becoming less trusted,” Ken Egan, senior director for sovereigns at credit rating analysis agency KBRA, told CNBC in a call on Wednesday. “If you follow that through, one way that could manifest is structural holders of debt, reserve managers in China, could move away from Treasurys in response to policy moves from the U.S.”
Egan added that secondary investors also appeared to be taking a step back from U.S. Treasurys, typically seen as a traditional safe haven assets, given the volatile geopolitical climate.
“Various forces are at odds, because you have inflationary concerns and a rapid repricing of Treasurys on those, but on the other side you have weak demand and growth, and more rate cuts being priced in,” he told CNBC.
German bonds were out of sync with the long-dated market on Wednesday because it is being seen as an alternative safe haven play, as investors — still stunned by the scale of Trump’s actions — wait for more clarity, he said.
Egan also noted that European bonds with shorter maturity terms were rising in value as they are more policy-sensitive and traders want to lock in returns now, as more global interest rate cuts are being priced in.
“Traditionally you might have gone into the U.S. during a period of volatility, but this is a U.S. story. Germany is benefiting from a wider flight to quality. The country has already told the market what it’s going to do, there’s clarity about what its path will look like,” Egan added, referencing Berlin’s recent passing of a huge fiscal package across infrastructure, climate and defense. In a note on Wednesday, Freya Beamish, chief economist at TS Lombard, likened the spike in U.S. government borrowing costs to the U.K.’s 2022 “mini budget” crisis, which rocked the country’s pension funds and led to emergency market intervention by the Bank of England.
“The really worrisome thing about negative supply shocks is that they push up inflation and destroy demand at the same time, destroying the hedging capacity of bonds for equities. They are capital destroyers,” she said.
“The issue here is not who is right or wrong about the long-term effects of tariffs. It is about investor perceptions over the probability of these types of shocks. And once this narrative starts to be priced in, the risk is of financial accelerators kicking in, as happened in the UK with the LDI crisis.”
Alex Brazier, global head of investment and portfolio solutions at BlackRock, told CNBC’s “Squawk Box Europe” on Wednesday that recent months had been a reminder for investors that “we’re in a new world.”
“This is not a situation where a classic broad stock index, broad bond index, set-and-forget portfolio is ideal,” he said. “Looking at the fundamentals of the U.S. bond market here, we’ve got some technicals going on, we’ve got early signs of stress in the swap market, that bears closely watching.”
Meanwhile, Susannah Streeter, head of money and markets at Hargreaves Lansdown, told CNBC via email on Wednesday that some European government bond yields had moved upward despite rising expectations of interest rate cuts in the region.
“This is likely to be because investors are selling out their positions in European bonds to buy U.S. Treasuries given that they are offering higher yields,” she said. “However, U.S. Treasury yields are falling back again, and the situation remains very fluid.”
A deal with Japan, or Korea, or the EU could spark a short-covering rally.
Safe Haven = Gold
Always has been always will be
The generations after the Boomers do not care one whit for the market and investing, even for Gen X all of that has been placed out of reach and they see no benefit to the market personally for wealth generation.
This is supported by the fact that 80%+ of all stocks and bonds are held by 10% of the population. The truly “rich” have created this by destroying the middle class. Now there is little middle class left to care about things like investments and most are even happy to see the “rich” get soaked this way, as it literally has little impact on them being the “poor” working class.
With the GSR now at 100, Safer Haven = Silver.
Do keep in mind that the gold market is the same as the diamond. Controlled by a few players and there is no limit to how much can be made available on notice.
I tell you that Germany is the last place I would put my money.
Treasuries are going down because many people use those for their possible margin calls. And that is happening so they are selling their treasuries to cover their margins. This includes big companies and little people both. China and democrats are no doubt selling them to harm Trump too.
If someone is selling, someone else is buying. No?
I am a boomer (born in last year or 2 of the Gen).
But Boomers perhaps squandered more national wealth than any country in history..not forced. Our Gen rush to buy cheap communist goods and sell out our jobs in the process is something I still don’t understand.
Although to be honest I suppose many of the politicians and powerful in the 90s were of the Greatest Gen . Grok said only 3 of the top richest men in the USA in 1993 were Baby Boomers.
One could argue that’s who started the mess.
“first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory.”
FDR
They were higher in 2007, that’s less than 27 years ago.
They were higher in 2007, that’s less than 27 years ago.
Gold is a world market it always hold value no mater how trade markets do.
Diamond are controlled by a few players but never gold.
That the US Congress plans to add $5 trillion in new debt has nothing to do with this. /s
Gold too very stable
OK, supposed our economy collapsed and you had to use gold that was selling for $5,000 per ounce and you wanted to purchase an item for $1,000. How do you handle that. On the other hand if silver was selling for $100 per ounce, much easier to buy that item. Hey, I just saying if you can afford to buy gold have at it but I could afford gold I would be buying a lot of silver also.
The only true source of safety is Physical gold in your home safe or buried under the basement
If GLD is paper its worthless...expect a short squeeze as people want physical gold and there isn't any available.
Exactly!
The term ‘buying gold’ these days is a non-sequitur.
What one is REALLY doing is dumping an IOU we have in our wallets, a poor devalued one at that, and getting back in our possession the metal behind that IOU.
IOU = green-inked TP
Legal in Texas...also the Texas the Gold Debit Card ...put in an oz of physical gold...say $3000 today and use it to spend until it runs out
Ha Gold Stable....?
it's $3000 an ounce now
Expect $4000 an ounce by end of next year
And $7000 the year after.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.