It’s been a choppy month for US safe-haven assets, with the 10-year Treasury yield swinging sharply from about 3.9% at the start of April to nearly 4.6% following President Trump’s April 9 “Liberation Day.”
Since then, yields have settled at a still-elevated range between 4.3% and 4.4%.
These fluctuations have puzzled investors. Treasurys typically act as safe havens during times of uncertainty, a sentiment currently dominating Wall Street as concerns mount over shifting trade dynamics and a possible self-inflicted recession.
Since bond prices move inversely to yields, rising yields indicate investors are selling off bonds. This is a counterreaction to the usual flight-to-safety behavior investors have come to expect during volatility, sparking concerns of a broader “sell America” trade.
But despite the unusual market moves, some strategists said they aren’t alarmed.
“It’s not really concerning to me at this point,” Jeff Schulze, head of economic and market strategy at ClearBridge Investments, told Yahoo Finance during a Q&A session earlier this week.
Schulze compared current market conditions to those in 2022, a year marked by several sharp spikes in yields as the Federal Reserve aggressively hiked interest rates to combat soaring inflation. In 2022, the 10-year yield began the year at around 1.6%, climbed to a peak of 4.3%, and ended at 3.9%.
Those moves were driven by a combination of faster growth, persistent inflation, and a rise in the “term premium.” This is the extra yield investors demand for holding long-term debt, especially when future conditions are uncertain.
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In Schulze’s view, the current yield increase is once again being driven by a rising term premium, not fundamental deterioration. After hovering near zero following the financial crisis, the term premium has recently climbed to about 50 basis points — a level more in line with historical norms after years of ultralow growth and accommodative monetary policy.
In the 2000s, for example, the term premium ranged between 50 and 100 basis points. It climbed even higher in the 1990s, often between 100 and 200 basis points.
“The term premium is essentially an uncertainty premium,” Kelsey Berro, fixed income portfolio manager at JPMorgan Asset Management, told Yahoo Finance on Wednesday.
“What was the narrative over the last few days? A lot of uncertainty about the [status of] the United States within the global order, and more specifically the headlines and the conversations from President Trump about the performance of [Federal Reserve Chair] Jerome Powell.”
In other words, rising yields aren’t signaling a collapse in confidence over US debt or the broader economy. Instead, it’s a reflection of heightened market uncertainty.
President Trump this week pivoted on earlier remarks that drew concern from investors that he would fire Federal Reserve Chair Jerome Powell. (Reuters/Carlos Barria/File Photo) ·Reuters / Reuters
Markets rallied midweek after Trump decided to backtrack on his attempt to remove Powell. More positive trade developments also helped lift investor sentiment, contributing to the fall in long-term yields.
As volatility begins to clear, Berro said Treasury moves will more heavily depend on the fundamentals like the outlook for growth, inflation, and the Federal Reserve, which has taken on a more dovish tone.
“We think the Fed is going to be cutting rates later this year,” Berro said. “That ultimately means about a range for 10-year yields of 3.75 to 4.5%.”
Read more: How much control does the president have over the Fed and interest rates?
In addition to the rising term premium, other factors, including the unwinding of highly leveraged positions, such as the basis trade, along with derisking from European investors, have also added to upward pressure.
“After 15 years of foreign accumulation of US assets, you’re seeing a reversal of that flow,” ClearBridge’s Schulze said. But while some have speculated that this signals a loss of confidence in the US, Schulze sees the shift as a broader derisking process following years of overexposure to US markets.
Others echoed this viewpoint.
“There’s really no alternative,” JPMorgan’s Berro said, arguing recent moves don’t necessarily imply that the US is losing its edge. Rather, markets are adjusting to other opportunities.
“Recent trading activity may hint at waning US exceptionalism,” she said. “That doesn’t mean the US is no longer exceptional.”
It’s been a choppy month for US safe-haven assets, with the 10-year Treasury yield swinging sharply from about 3.9% at the start of April to nearly 4.6%. (AP Photo/Richard Drew) ·ASSOCIATED PRESS
Lawrence Gillum, chief fixed income strategist at LPL Financial, offered a similar perspective, writing in a client note on Tuesday, “Despite recent volatility, US Treasuries remain the world’s preeminent safe-haven asset (for now), in our view, underpinned by the dollar’s global reserve status (for now).”
“This month’s Treasury market sell-off, while severe, does not signal a ‘regime shift’ away from this status,” he added. “Instead, we believe it mostly reflects temporary deleveraging pressures rather than a fundamental rejection of Treasuries’ safety.”
And while nothing is guaranteed, any shift away from the prevailing safe-haven status of the US would be a slow evolution. As Gillum put it: “We would argue that is something that would take place over decades and not days.”
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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