30-year yields in the US shot to a high of 4.95% earlier but is still up around 3 bps near 4.90% currently. That follows from the jump overnight in erasing the decline from late Wednesday, when Trump announced a pause on tariffs. On the week itself, 30-year yields are poised for their largest jump since 1982.
There are obviously a lot of moving parts in play as to why Treasuries are being sold off heavily. But even if the auction didn’t say so, the main worry is that there is still some form of funding stress in the market. Leveraged funds coming under big pressure is not the sort of thing that breeds confidence, particularly in this fragile market state.
And that is one thing to be wary about in case there are any leaks as to who is feeling the squeeze in all this and if they are able to ride out the turbulence. Otherwise, it is a cascading effect that will see things get much worse before they get better.
But as yields are continuing to surge higher, the ball goes back over to Trump’s side of the court.
As we know, it was the bond market – not the stock market – that got him to relent on his reciprocal tariffs position earlier this week.
And yet, Treasury yields are still surging as the market continues to kick and scream. So, what next?
We’re essentially playing a game of chicken where someone between Trump, China, or the Fed has to blink first.
Considering their response to all this, you wouldn’t want to bet on China to be the first to give in. That leaves only a battle between Trump and the Fed.
At this point in time, it’s not an easy call. If Powell & co. do step in with emergency purchases of Treasuries, it will provide some short-term relief. However, the message that it sends is that it just enables Trump to stay on his tariffs crusade for longer. As for Trump backing down further, that’s probably the best case scenario for markets – especially if he picks up the phone to call up Beijing.
That’s pretty much the situation that leveraged funds have gotten themselves into at the moment
