Why are bond-holders retreating from U.S. Treasury bonds now? The huge deficits and growing national debt have been around for a while. The willingness and ability of the United States government to pay the interest on the debt is no different now than it was a year ago or—in all likelihood—a year from now. How is the sell-off to be explained?
Peter Goodman of the New York Times,[1] has raked up a variety of explanations. They require some interrogation.[2] Goodman doesn’t necessarily connect the explanations, but they can be read to point in one direction.
“An erosion of faith in the governance of the world’s largest economy appears at least in part responsible for the sharp sell-off in the bond market in recent days.” President Trump’s tariffs, he reports, have “shaken faith in that basic proposition [that the US will properly manage the global environment and maintain its creditworthiness], challenging the previously unimpeachable solidity of U.S. government debt.” Goodman quotes Professor Mark Blyth of Brown University for support. “The whole world has decided that the U.S. government has no idea what it is doing.” He adds that “[o]ne reason [for the bond sell-off] appears to be an effective downgrading of the American place in global finance, from a safe haven to a source of volatility and danger.” Purportedly, the tariff war with China, in particular, creates the danger of a global recession and undermines the role of the U.S. as the manager of the world’s “peace and prosperity.”
I can believe the first half of this, but the second half is less credible. Nothing fiscal is threatening the creditworthiness of the United States right now. Why do tariffs disturb the bond market? Similarly, bonds are commonly regarded as a hedge against stock fluctuations and in recession. So, fear of a recession is making people sell bonds, rather than buy them?
Goodman mentions other possible factors:
“Hedge funds and other financial players have sold holdings as they exit a complex trade that seeks to profit from the gap between existing prices and bets on their future value.” This sounds very much like “financial players” are dumping bonds now to force the government to raise the yield on bonds.[3] Today’s sellers will then buy back the bonds at a higher rate tomorrow. Similarly, “[s]ome fear that China’s central bank [which holds $761 billion] in U.S. Treasury debt, could be selling as a form of retaliation for American tariffs.”
What are the effects of investors selling bonds now? In early April 2025, “the yield on the closely watched 10-year Treasury bond soared to 4.5 percent from below 4 percent—the most pronounced spike in nearly a quarter century.” Raising interest rates to attract borrowers “tends to push up interest rates throughout the economy, increasing payments for mortgages, car loans and credit card balances.” This will hurt ordinary Americans. They will howl.
Are Wall Street and China pressuring President Trump to lay off his incoherent tariff policy? If so, is that who we want to surrender to? It won’t be the last time.
[1] Peter Goodman, “Trump Tariffs Shake Faith In the Safety of U.S. Bonds,” NYT, 14 April 2015.
[3] “Speculators have been unloading bonds in response to losses from plunging stock markets, seeking to amass cash to stave off insolvency.” Does this mean that other “financial players” are in danger of getting gored as collateral damage?
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