Government bonds sold off and stocks plunged. The situation was unusual and raised concerns that global investors are losing long-term confidence in the United States.
Stocks are often seen as risky assets, while bonds are known as “safe havens,” and the two usually move in opposite directions. That’s because government bonds – securities sold to finance spending that will be repaid to the buyer with interest over a certain period of time – are backed by the full faith and credit of the U.S. government.
But public companies and their share prices are not. So when stocks are booming and investors are keen to bet on the performance of American companies, demand for low-risk bonds dries up. In turbulent times, the opposite is usually true.
Instead, the two markets sold off at the same time. The yield on the main U.S. government bond – the 10-year Treasury – surged to more than 4.5% this week.
Bond prices are negatively correlated with yields, so rising yields indicate falling demand for bonds. The 10-year Treasury yield closed the week up more than 12%, while the S&P 500 rose 5.7% after a week of volatile trading and rebounded late Friday after a series of sharp declines.
“We don’t know why the bond market is so volatile,” Barclays analyst Ajay Rajadhyaksha said in a note to clients Friday titled “This is not normal.”
The surge in 10-year and 30-year Treasury yields has led to higher borrowing costs for the federal government. It’s also bad news for consumers because the 10-year Treasury yield is directly tied to interest rates on mortgages, credit cards and personal and business loans.
“This is important to almost all Americans,” said Natalie Coley, a partner and financial planner at Francis Financial in New York.
“The days of pensions are gone,” she said, referring to the more than 70 million American savers who have access to market-linked 401(k) retirement accounts. The turmoil on Wall Street in recent weeks has unnerved many account holders, forcing some financial planners to double as counselors to help upset clients.
“If Treasuries are no longer a safe haven, that’s going to have big implications for all balance sheets, from corporations to nonprofits to pensions to households,” said Ernie Tedeschi, former chief economist for the Biden administration and current director of economics at the Yale Budget Lab. “A large portion of global finance is dependent on the safety of Treasuries.”
He called recent bond market trends “the most worrying data since the tariffs began.”
“It shows that confidence in America’s place in the world is declining,” he said.
U.S. Treasury Secretary Scott Bessent dismissed such concerns, telling Fox Business News on Wednesday: “There’s nothing systemic about this. I think it’s a disturbing but normal deleveraging process that’s going on in the bond market.”
But experts see warning signs elsewhere, too. The dollar has fallen sharply against other global currencies. This week, the dollar suffered its biggest drop since 2022 and closed on Friday at its lowest level since September.
“All is not well in the U.S. right now,” said financial educator and author of “In This Economic Environment? Kayla Scanlon, author of “The Dollar: How Money and Markets Really Work,” told her TikTok followers this week. “The dollar is getting hammered.”
She blamed the dollar’s decline on “the erratic trade policy we’ve seen,” adding: “The market doesn’t believe the U.S. has a stable or clear economic plan.”
Minneapolis Federal Reserve Bank President Neel Kashkari expressed similar concerns.
“Typically, when tariffs are increased significantly, I would expect the dollar to appreciate. But at the same time, the dollar is depreciating, which lends credence to the idea that investor preferences are shifting.”
There are several other possible explanations. One has to do with the way hedge funds bet on the bond market. Another is that investors are expecting higher inflation and are demanding higher rates now to avoid losses in the future.
“Maybe they feel, or the market feels, that the actions around tariffs are actually creating upward pressure on inflation,” said Douglas Boneparth, president of New York-based consulting firm Bone Fide Wealth. “That’s probably part of the puzzle.”
Even experts who aren’t so sure about the cause of the bond sell-off say geopolitical factors are hard to ignore.
“The idea of other countries alienating the United States, I don’t want to get into that,” said Lee Baker, founder of Claris Financial Advisors in Atlanta. “But in this particular case, the United States alienated all other countries” and erected new high trade barriers.
For now, Baker and other wealth advisors are cautioning clients not to react hastily to the recent volatility. Younger investors who haven’t yet retired and are generally less exposed to the bond market should be cautious, Kohli said.
“Making sure your asset allocation is in line with your life stage” and accumulating some emergency savings can help you build “a financial moat that allows any investor at any stage of their investing career not to panic about what the stock market is doing,” she said. If possible, she recommends keeping at least six months of cash in reserve for emergencies.
Older retirement savers can consider some protections, Baker said.
His firm has been building buffer exchange-traded funds (ETFs) for client portfolios, so-called “definite outcome” ETFs tied to options contracts. Such funds are typically pricier and often limit potential gains, but they offer strong downside protection and have seen a surge in interest recently. BlackRock launched a new iShares Buffer ETF earlier this year, billing it as a way to “participate in market growth while reducing risk.”
Baker added that “there are a lot of other things in the world besides stocks and bonds” worth considering investing in, such as real estate, infrastructure and private equity. But he cautioned that it’s usually best to consult with a qualified adviser first, in part to avoid making major capital moves out of fear.
“It’s probably not a good idea to go all-in on any one of these,” he said, “but we can reduce your downside and give you some upside by combining them.”
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