Treasuries Join Global Bond Selloff as Tariff Fears Grip Markets

The latest spike in Treasury yields is sending the administration a message it’s unlikely to ignore, said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. The April tariffs announcement prompted Trump to walk back some of his most severe threats, calming markets.

“Trump loves to weaponize uncertainty up to the point the markets respond negatively,” McIntyre said.

Multiple Forces

While the Danish pension fund tied its decision to unsustainable US fiscal trends and not to the Greenland initiative, the European Union effectively suspended the ratification of a trade agreement reached with the US last year following the threats against countries that oppose it.

Related story: Macron Blasts Trump Trade Strategy Meant to ‘Subordinate’ EU

Other considerations for investors in US government bonds Tuesday included the possibility of a US Supreme Court ruling — which didn’t come to pass — on a legal challenge to the tariffs, which have raised revenue and improved the US fiscal trend marginally. The next potential decision date is Feb. 20.

The US high court will hear arguments this week on Trump’s attempt to dismiss Fed Governor Lisa Cook, unfolding against the backdrop of rising concerns over central bank independence amid the president’s antipathy toward Chair Jerome Powell’s leadership and Justice Department subpoenas targeting the Fed. Trump is expected soon to name a successor to Powell, whose term ends in May.

Treasuries resumed trading following a US holiday on Monday, with investors reacting to the Japanese government bond selloff and Trump’s insistence on US control of Greenland.

‘True Accelerant’

“The Danish pension fund retort is an important gauge of sentiment, but mathematically lost amidst a $30 trillion US Treasury market,” said George Catrambone, head of fixed income at DWS Americas. “The true accelerant to the Treasury and dollar selloff seems to be Japan, and concern of repatriation from global markets to support higher inflation and JGB yields.”

The moves snapped a remarkable period of inertia for US bonds, a weeks-long development that saw the 10-year note rivaling its longest stretch of calm in the past two decades. Gauges of expected volatility also ticked higher in currency markets as the US dollar came under pressure, sinking earlier to a two-week low.

Related story: Dollar Rates Vol Rebounds to Highest in Month Over Risk-Aversion

The US Treasury selloff reflects “a combination of factors,” said Ian Lyngen, head of US rates strategy at BMO. “The stubbornly narrow yield range in Treasuries has finally broken and it’s done so in a convincingly bond-bearish fashion.”

A $13 billion sale of 20-year notes on Wednesday will test demand for longer-dated debt.

The transatlantic rift over Greenland has fueled debate about whether European countries will offload their holdings of US bonds and stocks, potentially driving borrowing costs up and equities down given US reliance on foreign capital.

“The key new dynamic now is that the US has become the source of uncertainty, not the safe haven from it,” said Andrew Ticehurst, senior rates strategist at Nomura Australia Ltd. in Sydney.

By one metric, long-dated Treasuries were set to cheapen the most in a day since May. The gap between 30-year yields and equivalent interest-rate swaps widened three basis points to 68. Still, that’s some way below the levels seen following Liberation Day in April, when momentum to sell US assets surged and the so-called swap spread widened to one-percentage point.

Treasury Secretary Scott Bessent urged calm and dismissed suggestions that Europe would forcefully retaliate by dumping Treasuries during a press conference at the World Economic Forum in Davos.

“The implications of the tariff threats over Greenland had yet to fully percolate through financial markets,” said Jim Reid, global head of macro research and thematic strategy at Deutsche Bank AG. “It’s worth keeping an eye on the demand for US assets as a barometer for how aggressive the US might be on this policy.”

--With assistance from James Hirai, Charles Riley, Liau Y-Sing and Neil Chatterjee.

(Adds strategist comment and details throughout. Updates yield levels.)