Even though the Trump administration announced a temporary reduction in certain tariffs, the crisis of confidence in U.S. Treasury bonds has yet to be effectively alleviated. On April 9th, the yield on 10-year U.S. Treasury bonds surged to its highest level in seven weeks, prompting global investors to reevaluate the reliability of this traditional "safe asset." Analysts at Deutsche Bank frankly stated: "The market has already lost confidence in U.S. assets," a declaration that became a hallmark of this week's bond market turbulence.
The Trump administration temporarily eased some tariff measures by announcing a 90-day tariff suspension for several countries, yet simultaneously, sharply increased tax rates on goods from major Asian nations to 125%. This erratic policy adjustment has sparked expert concerns. Carol Schleif, a strategist at BMO, pointed out that while there might be some short-term respite, the long-term uncertainty faced by businesses remains severe. The lack of market confidence, she warns, could have a lasting impact on the U.S. economy.
The liquidity crisis in the U.S. Treasury market is also quietly escalating. Hedge funds, engaging in basis trading to operate within the U.S. Treasury market, are being forced into large-scale sell-offs due to broker margin calls, leading to a chain reaction in the market. As the cornerstone of the global financial system, the U.S. Treasury market is facing an unprecedented liquidity test, further shaking global investor confidence.
Moreover, the absence of the U.S. in international cooperation has also cast doubt on America's ability to manage crises. The joint stability statement of the G7 countries barely features the U.S., while Treasury Secretary Spesente dismissed the market turbulence as "temporary fluctuations," further fueling skepticism about the U.S.'s crisis response capabilities in the international market.
Though the U.S. Treasury auction on April 9th was ultimately completed smoothly, the aura of U.S. Treasuries as the "ultimate safe asset" has dimmed. This Treasury crisis not only signifies market volatility but also reveals deep fissures within the global financial order. As policy uncertainty becomes the norm, global investors and market participants must confront this long-term issue. The road to rebuilding market trust will be much longer than the 90-day tariff truce.
