Bonds Slide as Stocks Are Jolted by Trade War Chaos

U.S. Treasury yields continued to rise and European stock markets tumbled after President Donald Trump dramatically increased trade tariffs on China, setting them at levels not seen in a century. The move intensified already high tensions between Washington and Beijing, sending shockwaves through global financial markets.

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The yield on 30-year U.S. government bonds spiked to its highest point since November 2023, reflecting growing unease among investors who are beginning to question whether Treasuries can still be considered a reliable safe haven.

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Simultaneously, the U.S. dollar weakened for a second straight session, while the main European stock index plummeted over 3%. Oil prices also slumped, hitting a new four-year low as fears over global economic stability deepened.

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There was a brief pause in the market’s downward spiral when China indicated a willingness to return to negotiations with the U.S., though it made clear that it remained prepared to “fight to the end” if necessary.

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While Beijing has yet to issue a formal response to the newly announced tariffs, the lack of immediate retaliation offered a small glimmer of hope to traders. As a result, Chinese stocks rebounded and pared earlier losses. U.S. equity futures also momentarily turned positive, and Treasury losses eased somewhat.

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Still, market participants remain highly anxious. “We’ve entered a new and dangerous stage of the trade war, and right now investors are struggling to find any solid ground,” said Alexandre Baradez, chief market analyst at IG Markets Ltd. “One of the clearest signs of the times is that U.S. Treasuries, long seen as the ultimate safe haven, are now adding to market stress rather than relieving it.”

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Trump’s decision to raise tariffs on Chinese goods to 104% has drawn widespread criticism from investors, including billionaire hedge fund manager Bill Ackman. Economists from major institutions such as JPMorgan Chase and Goldman Sachs have responded by increasing the likelihood of a U.S. recession in their forecasts. Such a downturn would make the Federal Reserve’s task significantly more complex—especially if it must respond to a spike in inflation driven by higher import costs from the tariffs.

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Investors are also growing increasingly nervous about the broader implications of rising market stress. With volatility escalating and financial systems under strain, some fear that the situation could lead to more severe disruptions. Ray Dalio, the influential founder of hedge fund giant Bridgewater Associates, warned that the world may be facing a “once-in-a-lifetime” collapse in the existing global monetary, political, and geopolitical framework.

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This evolving crisis is reflected in the behavior of the U.S. bond market. Shorter-term, policy-sensitive notes like the two-year Treasury are now performing better than their longer-term counterparts, suggesting that traders are anticipating potential interest rate cuts from the Federal Reserve. Meanwhile, the selloff in longer-dated bonds—particularly the 30-year—has shaken confidence in the traditional role of U.S. government debt as a universally trusted store of value.

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The 10-year Treasury yield climbed about seven basis points to 4.35%, and has surged more than 40 basis points over the course of the week, underscoring the pace and severity of the bond market’s retreat.

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The current situation presents a tangled challenge for policymakers, investors, and financial institutions alike. With the world’s two largest economies locked in a deepening trade war, markets have been stripped of stability. The growing skepticism surrounding U.S. Treasuries adds another layer of complexity, as it upends a long-standing cornerstone of global finance.

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Though there was a temporary sigh of relief after China's statement suggesting openness to talks, the underlying sense of uncertainty remains high. As the markets continue to react to fast-moving developments in the U.S.-China standoff, few investors feel confident that a resolution is near. Until then, volatility is likely to remain elevated, and traditional safe havens like bonds may offer less protection than in the past.

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