Friends, buckle up! The US Treasury market is getting absolutely hammered, and it’s not just about the economic fundamentals anymore. CITIC Securities is out with a report and they’re calling it like they see it: we’re looking at potentially higher Treasury yields in the short-term, and a lot of volatility.
Here’s the deal. These aren’t rational tariffs driving this market; they’re bordering on the absurd. They’re having a limited economic impact, but a massive impact on sentiment. We’re seeing a flight from US debt as investors reassess risk, especially with concerns around US creditworthiness and liquidity rising to the surface. The ‘safe haven’ appeal of US Treasuries is waning, and that’s a big problem.
Historically, tariff announcements have given yields a quick boost, but this is different. We’re not seeing any serious attempts at negotiation from either side, suggesting ongoing escalation. This isn’t about data—it’s about tariffs.
Let’s dive a little deeper into why this is happening.
Understanding Yields & Tariffs: Higher tariffs imply a potential future slowdown in economic activity, which isn’t necessarily bad for bonds, but the current situation is different because the tariffs are perceived as unpredictable and damaging to global trade.
Credit Risk & Liquidity: If investors believe the US may struggle to repay its debt, or if it becomes difficult to trade US Treasuries, yields will naturally rise as compensation for those risks.
The Safe Haven Trade: Traditionally, when global uncertainty spikes, investors flood into US Treasuries. The recent sell-off shows that trust is eroding.
Looking ahead, if tensions cool and the US economy doesn’t fall off a cliff – and if the dollar remains the world’s reserve currency – we could see Treasury prices rebound and yields come down, particularly as the Fed likely lowers rates later on, to offset the shock. But don’t hold your breath! This situation is far from predictable. The irrationality of the tariff policy means swings can be extreme. This isn’t a time for the faint of heart!
