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Treasury yields soared to their highest level since February on Friday, as traders complained liquidity was worsening amid a deepening rout in the $29tn US government bond market.
The 10-year Treasury yield climbed 0.19 percentage points to 4.58 per cent amid a deepening slump for an asset traditionally considered the global financial system’s ultimate haven.
The yield has risen from less than 3.9 per cent earlier in the week as Donald Trump’s erratic tariff policies shake investors’ faith in US policymaking and the economy, sparking an exodus from American assets.
While Trump backed down from his so-called reciprocal tariffs on non-retaliating countries earlier this week — agreeing to a 90-day hiatus for most major US trading partners — he placed even steeper levies on Chinese imports.
“There is real pressure across the globe to sell Treasuries and corporate bonds if you are a foreign holder,” said Peter Tchir, head of US macro strategy at Academy Securities. “There is a real global concern that they don’t know where Trump is going.”
Friday’s sell-off, which left Treasuries on course for their worst week since 2019, according to returns on the Bloomberg US Treasury index, was accompanied by a drop in the dollar.
A gauge of the currency’s strength against major peers fell as much as 1.8 per cent on Friday. Sterling, the Japanese yen and the Swiss franc all made significant gains.
“We are concerned because the movements you see point to something else other than a normal sell-off,” said a European bank executive in prime services, a division that facilitates leveraged trading for firms including proprietary traders and hedge funds. “They point to a complete loss of faith in the strongest bond market in the world.”
One of the primary beneficiaries of the sell-off in US assets had been German Bunds, said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott. The 10-year German yield was down 0.04 percentage points to 2.54 per cent.
Traders said poor liquidity — the ease with which investors can buy and sell Treasuries — was exacerbating market moves.
Analysts at JPMorgan said market depth, a measure of the market’s ability to absorb large trades without significant shifts in price, had significantly worsened this week, meaning even small trades were moving yields significantly.
The head of Treasury trading at a major US bond manager said liquidity was “not great today” and explained that “market depth was running 80 per cent below normal averages” on Friday.
