US treasury yields soared in April 2025, with the benchmark 10-year note climbing 50 basis points over the course of the week ending April 11 — its sharpest five-day jump since 1982.

This bond market rout sent a clear signal that investor confidence in US treasuries, long viewed as the ultimate safe-haven asset, is being shaken. While several contributing factors played a role, the central driver appears to be growing unease about the credibility and consistency of US economic policy, particularly the Trump Administration’s trade stance.

The sell-off came against the backdrop of escalating trade tensions and erratic policy signals from Washington. President Trump stunned markets by first threatening, then delaying, and finally modifying a new wave of tariffs targeting numerous countries. While a 90-day pause on higher reciprocal tariffs for most nations provided temporary relief, China wasn’t included.

Instead, tariffs on Chinese goods were raised sharply, in some cases to as much as 145 per cent. China responded in kind, imposing retaliatory levies of up to 125 per cent on US exports. These moves not only exacerbated geopolitical tensions but also added a layer of complexity for businesses and investors trying to navigate an already volatile environment.

What unnerved investors most was not just the substance of the tariffs but the seemingly spontaneous nature of their announcement and execution. Market participants were left guessing about future trade and fiscal policy, undermining confidence in Washington’s ability to provide the kind of stability historically associated with US Government institutions.

In times of uncertainty investors usually buy more US Treasury bonds. But this time, the opposite happened: investors started selling them. This pushed bond prices down and yields up. This shift suggests that Treasuries’ reputation as a risk-free store of value is being questioned. Analysts point to the Trump Administration’s unpredictable approach to trade and diplomacy as a key factor in this erosion of trust. As one strategist put it: “When the rules of the game change without warning, even the safest assets start to look risky.”

Complicating matters further is the US Federal Reserve’s (Fed) balancing act. The Fed has taken a cautious stance amid signs that trade policy may weigh on growth while contributing to higher inflation. While the Fed has not signalled imminent rate cuts, it has acknowledged the downside risks posed by prolonged trade conflicts. This wait-and-see approach has done little to reassure markets, particularly when the bond sell-off is not being met with strong policy support.

The treasury rout also raises questions beyond US borders. Central banks, sovereign wealth funds, and institutional investors worldwide have long anchored their portfolios with US Government debt. A significant re-evaluation of treasuries as a safe-haven asset could prompt broader shifts in global asset allocation, potentially impacting the dollar, equity markets, and even interest rates worldwide.

Of note, treasury yields have pulled back modestly in recent days following news that the Trump Administration has eased certain tariff measures for strategic partners. This movement underscores that the erosion of confidence in treasuries is not irreversible. The recent softening of trade tensions, though small, has already shown signs of restoring some investor trust in US assets. It also shows that confidence can return fairly quickly if policies become more predictable and trade tensions ease.

The bottom line is, US Government bonds are still a key part of the financial world. But to keep investor trust strong, policymakers need to be clear, consistent, and thoughtful about how their decisions ripple throughout the world economy.

Eugene Stanley is vice-president, fixed income and foreign exchange at Sterling Asset Management. Sterling provides financial advice and instruments in US dollars and other hard currencies to the corporate, individual, and institutional investor. Visit our website at www.sterling.com.jm

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