US Treasury Yields Surge—What It Means for the Bond Market

The benchmark 10-year Treasury yield heads toward 4.5 percent.

A businessman clicks a bonds virtual screen. Funtap/Shutterstock

Yields in the U.S. Treasury market, a critical place for investors seeking shelter from turmoil and for the government to raise money, have been heating up.

The benchmark 10-year Treasury yield shot up to about 4.5 percent during the trading session on April 11, a sharp reversal after closing below 4 percent the prior week. The roughly 50 basis-point increase represented one of the largest spikes on record.

Recent gains have been broad-based. The two-year yield has approached 4 percent, and the 30-year U.S. government bond flirted with 5 percent in intraday trading, the highest level since mid-January.

“Our impression from here is the 10-year Treasury yield will have a tendency to head for the 4.5 percent area, potentially with a view to thinking about 4.75 percent,” ING strategists said in a note.

Treasury yields represent the interest rates the federal government pays to borrow money and trade inversely to the bond’s price. They also influence borrowing instruments, from mortgages to auto loans.

Yields can reflect investors’ confidence. An increasing yield can suggest shrinking demand for bonds, economic optimism, and rising inflation expectations. Conversely, a falling yield will signal growing caution about the broader economy and projections of lower interest rates.

Movements in the bond market have captured Wall Street’s attention. Typically, traders will dive into the conventional safe-haven asset during geopolitical or financial turbulence. Despite the market carnage this week, however, investors did not search for protection in government bonds.

The leading benchmark indexes—the Dow Jones Industrial Average, Nasdaq Composite Index, and the broader S&P 500—dropped significantly, before they pared a large portion of their losses toward the end of the trading week.

With Treasury auction results indicating solid domestic and foreign investment demand for U.S. debt, speculation is rampant that China and Japan have been shedding their holdings of U.S. bonds. The subject has turned into a fierce debate among market analysts.

Analysts Debate China

A significant spike in yields in a short period would typically be caused by widening supply-demand imbalances. A bond vigilante—an investor frustrated by fiscal policy—or a foreign country disgruntled by another country’s trade policy might suddenly cut their exposure to U.S. bonds.

“After yesterday’s announcement which paused tariffs for almost the entire planet, there’s only one suspect: China,” said James Hickman, an international investor and founder of the Sovereign Man, in a report published on the economic insights platform Schiff Sovereign.

“[China] is stuck with a 100 percent-plus tariff. So they definitely still have an ax to grind,” the report reads.

The Chinese regime possesses enough firepower to spark a tremor in the Treasury market. According to data from the Treasury Department, China is the second-largest holder of U.S. debt, totaling approximately $760.8 billion. This is less than Japan’s balance sheet of nearly $1.08 trillion.

Beijing has been gradually unwinding its position in U.S. Treasury securities for nearly two years.

It is unclear if China is dumping U.S. government bonds. Lawrence Gillum, the chief fixed income strategist for LPL Financial, told The Epoch Times that currency movements could determine if foreign investors are ditching U.S. assets.

“When foreign investors sell U.S. assets, including U.S. Treasurys, they receive dollars from the sale,” Gillum said.

“From there, a foreign investor will convert its dollar holdings into its home currency since it doesn’t really need dollars for anything. Those transactions tend to place downward pressure on dollars (as they sell dollars) and upward pressure on its home currency (as they buy their home currency).”

This week, the U.S. dollar has noticeably appreciated against the Chinese yuan, which is the opposite of what would occur if the regime dumped Treasury securities.

In addition, other government bond markets, such as Canada and the United Kingdom, are facing intense selling pressure. This week, the British and Canadian 10-year yields topped 4.74 percent and 3.25 percent, respectively.

“Our view is that there are a number of reasons why U.S. Treasury bonds are selling off, but forced deleveraging is likely the primary culprit, [and] an illiquid Treasury market has likely exacerbated the move in yields,” Gillum stated.

“That is not to say there hasn’t been foreign officials selling, it just isn’t the primary reason for the bond selloff, in our view.”

Still, whatever the culprit behind the volatility in Treasury yields may be, officials are paying attention to what is unfolding in the U.S. bond market.

Treasury Yields and Economic Policies

Kevin Hassett, the head of the National Economic Council, stated that the selloff in the Treasury market pushed the White House to accelerate its decision to pause President Donald Trump’s reciprocal tariffs for 90 days.

“There’s no doubt that the Treasury market yesterday made it so that the decision—it was about time to move—was made with perhaps a little more urgency,” Hassett told CNBC on April 10.

Treasury yields have become an integral factor for senior administration officials as higher movement can increase borrowing costs for Uncle Sam.

In February, Treasury Secretary Scott Bessent said in an interview with Fox Business Network host Larry Kudlow that he and the president are concentrating more on the Treasury market than what the Federal Reserve does.

“The president wants lower rates. He and I are focused on the 10-year Treasury and what is the yield of that,” Bessent said.

“We cut the spending, we cut the size of government, we get more efficiency in government, and we’re going to go into a good interest rate cycle.”

The Fed launched its easing cycle in September, following through on a half-point interest rate cut. This year, the U.S. central bank has paused its unwinding of restrictive monetary policy amid elevated inflation and tariff uncertainty.

Trump has repeatedly urged Fed chair Jerome Powell to lower interest rates. In a recent Truth Social post, the president wrote that it would be a “perfect time” to pull the trigger on a rate cut.

“He is always ‘late,’ but he could now change his image, and quickly,” Trump said. “Cut interest rates, Jerome, and stop playing politics!”

With the federal government poised to refinance trillions of dollars in debt this year, higher yields can lead to greater borrowing costs for Uncle Sam.

Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, says that the latest market developments signal that global investors are transitioning from the United States.

“Normally, when you see big tariff increases, I would have expected the dollar to go up. The fact that the dollar is going down at the same time, I think, lends some more credibility to the story of investor preferences shifting,” Kashkari said in an April 11 interview with CNBC’s “Squawk Box.”

The U.S. Dollar Index (DXY), a gauge of the buck against a weighted basket of currencies like the British pound and Canadian dollar, has dropped nearly 8 percent this year. The index fell to a 52-week low of 99.01 in intraday trading before paring a large portion of its losses toward the end of the trading week.