It’s been one of the most chaotic stretches for US markets in recent memory. And the massive surge in long-term Treasury yields has served as yet another example of the bizarre trading action in the aftermath of Trump’s tariff-fueled “Liberation Day.”
The 10-year yield (^TNX) jumped 17 basis points to kick off the week, a massive 34 basis point swing from a low of 3.87% to a high of 4.21%. The yield extended those gains on Tuesday, climbing nearly 11 basis points to hover at around 4.26%.
Similarly, the 30-year yield (^TYX) jumped another 12 basis points Tuesday after seeing its biggest move to the upside since March 2020. As of the market close, the 30-year yield traded at 4.72%.
Based on intraday datasets, which date back to 1998, market veteran Jim Bianco said “instances when the 10-year was down at least 12 basis points intraday and closed higher by at least 12 basis points that same day” have only happened three times, including Monday.
“There are too few examples to discern market direction,” he added in a post on X. “Rather, it tells us the bond market thinks today was an extremely important day. How? For now, we can only speculate.”
Strategists have laid out multiple theories. They range from investors seeking more liquidity within a volatile market to bond traders perhaps feeling more confident that the US economy can avoid a recession.
“The bond market’s been telling us it hasn’t been panicking. It’s been telling us that maybe we’re not in a recession yet, and we may not go into one,” Nancy Tengler, chief investment officer at Laffer Tengler Investments, told Yahoo Finance on Tuesday. “Given that as a backdrop, I do think the noise will continue.”
The bond market is often considered a safe haven for investors during times of uncertainty, which has been the word “du jour” as political turmoil threatens to upend the future of the global economy. And despite a US labor market that’s largely held up, Wall Street remains on edge that shifting trade dynamics could induce a self-inflicted recession.
One of the biggest concerns is stagflation, where growth stalls, inflation persists, and unemployment rises. Risks of that scenario have shown up more firmly in Wall Street’s projections following a string of disappointing data releases, along with the administration’s latest trade shocks and other policy unknowns like recent efforts to cut government jobs from Elon Musk’s Department of Government Efficiency (DOGE).
Read More: What is stagflation, and how does it impact you?
“While it’s too early to fully understand the economic ramifications of a potential trade war, the tug-of-war between slowing growth and higher inflation will likely continue to add volatility,” LPL Financial said in a research note published on Monday.
In other words, the bond market is caught right in the middle of the “stag” and the “flation.”
What the heck is going on? Futures-options traders work on the floor at the American Stock Exchange (AMEX) at the New York Stock Exchange (NYSE) in New York City, U.S., April 7, 2025. (REUTERS/Brendan McDermid) ·REUTERS / Reuters
When inflation rises, or is projected to rise, investors assume the Federal Reserve will tighten monetary policy to wrangle rising prices, leading to higher interest rates. Treasury yields often follow in tandem as bond traders demand greater returns to offset the decrease in purchasing power due to inflation.
The opposite effect happens during times of slowing growth, as investors race to gobble up bonds to protect themselves from a deteriorating economy and subsequent rate cuts from the Fed.
That’s why the stark surge in yields has been confusing to Wall Street watchers.
“Yesterday’s kick up in rates was fascinating because there’s no obvious reason,” Steve Sosnick, chief strategist at Interactive Brokers, told Yahoo Finance on Tuesday. “I’ve read a million different opinions on this, and the two I keep coming back to, neither of which are particularly friendly: No. 1 is rates kicked up because inflationary expectations are getting higher [from the tariffs.]”
“But there’s also a concern,” he added, “that with all of this back-and-forth with China, there’s a possibility that they stop buying and boycott our debt. Japan has the largest stock of Treasurys, but China has been a big buyer. What happens if that source of foreign demand shrinks or dries up completely?”
In that case, Sosnick said, the US Treasury would have to issue at higher rates in order to make up for the loss: “The supply is not going down anytime soon, right? But you’re going to have to do something about demand.”
And if markets are having a difficult time pricing low-risk assets like Treasurys, Sosnick added, “They’re certainly not going to have an easy time pricing higher-risk assets, like equities or crypto or anything of that nature.”
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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