President Trump hit the pause button on reciprocal tariffs — and the bond market convinced him.
In the lead-up to the president’s pivot, markets were unraveling: Stocks slid sharply, with the S&P 500 on the brink of a bear market. But the real alarm bell? A sharp, unexpected surge in long-term Treasury yields — a move that seemed to force the president’s hand.
“The bond market is very tricky. I was watching it,” Trump admitted to reporters shortly after the announcement. “People were getting a little queasy.”
At its highs of the week on Wednesday, the 10-year yield (^TNX) traded at 4.47%, a massive 60 basis point swing from Monday’s low of 3.87% and the biggest three-day jump since December 2001.
Notably, Wednesday’s surge pushed the 10-year yield back to late-February levels, an unsettling signal for a president who has long pressed for lower rates. The 30-year Treasury yield faced a similar trajectory, jumping as much as 25 basis points this week to hit its highest level since November 2023. At its peak, the three-day jump marked the steepest climb in long-term yields since the 2020 pandemic shock.
The 10-year yield slightly retreated Thursday following Trump’s pivot, but the relief was short-lived. Shortly after the market close, yields were back around 4.4%.
“Welcome to the world where bonds rule,” Kathy Jones, chief rates strategist at Charles Schwab, told Yahoo Finance of the whipsaw market developments. “You can do a lot of things, but when the bond market tells you you’re wrong, then you’ve got a problem.”
Jones noted that bonds are closely connected to several key aspects of the market, such as stock valuations, borrowing costs, interest rates, and overall financial conditions.
“When that goes wrong, you pretty much have everything wrong. That’s the lesson,” she said. “And the market will tell you when you’re wrong by blowing everything up.”
As market turmoil escalated, warnings from economists and top business leaders grew louder.
Early Wednesday, JPMorgan CEO Jamie Dimon cautioned on Fox Business that a tariff-induced recession was becoming increasingly “likely,” adding that the negative market reaction “could get worse if we don’t make some progress” on negotiations.
Trump took notice. He directly referenced Dimon’s interview later that day, calling him “very smart and very genius financially.” According to sources cited by the Wall Street Journal, the president was watching Fox Business in real-time and asked aides to reconsider the full scope of the planned tariff hikes shortly afterward.
Despite a brief rally late Wednesday, stocks reversed course as investors shifted their focus to China, which now faces a staggering 145% tariff rate after Beijing enacted retaliatory levies of 84% on US goods.
The 10-year Treasury yield (^TNX) slipped slightly to around 4.4%, still holding near those late-February highs amid ongoing trade jitters.
The bond market serves as a “cash collateral” of sorts to US and global investors who can then borrow money and bet on riskier assets like stocks. It’s also viewed as a safe haven during times of uncertainty, which has been the word du jour — even while Wall Street remains on edge because shifting trade dynamics could induce a self-inflicted recession.
“Where else are the world’s investors going to turn when they’re seeking a safe haven, if not in Treasuries (and also to some extent, the almighty US dollar)?” Fundstrat asked in a research note on Thursday. “The answer to that question has always been: nowhere else.”
“But with inflation concerns still lingering,” the note continued, “The latest turmoil in global markets sparked by President Donald Trump’s tariff campaign and recent developments in geopolitics appear to have some questioning whether it still is.”
Bond influenced? President Donald Trump speaks after signing an executive order in the Oval Office of the White House Wednesday, April 9, 2025, in Washington. (Pool via AP) ·ASSOCIATED PRESS
Wall Street analysts have floated several theories to explain recent yield volatility, from sticky inflation and a cautious Fed to a shift from bonds to cash and thinning Treasury market liquidity.
Ongoing uncertainty stemming from inconsistent trade dynamics has only added to the instability.
According to Jones, this uncertainty is likely to continue influencing bond markets in the near term. She warned that yields could potentially surge to 5% under more turbulent trade conditions, describing it as a scenario of “more chaos in the market and more unwinding of capital.”
Nonetheless, she maintains a baseline forecast of 3.8% for the 10-year Treasury yield.
The unwinding of the popular (and potentially risky) basis trade — along with the potential of bond boycotts overseas — has also spooked Wall Street. The basis trade, a highly leveraged trading strategy most often used by hedge funds, occurs when traders attempt to profit from a small price gap between Treasury futures and actual government bonds.
The basic idea is to buy the bonds at a cheaper price and “short” the more expensive futures contract with the hope the two prices will eventually merge. Think of it this way: Let’s say you buy a concert ticket for $100 today, but your friend agrees to pay you $110 for the ticket five days before the show. As the initial buyer, you know the two prices will eventually merge the closer you get to the concert, and can then lock in that small profit of $10.
The problem? Hedge funds use a lot of borrowed money to do this at scale — sometimes up to 100 times in leveraged bets — which means if the price gap worsens, those small moves can create significant losses.
Another looming risk: foreign investors offloading US Treasurys.
Tensions with China have sparked fears that Beijing could aggressively pull back on purchases, an unsettling prospect given China’s role as a major holder of US debt. While Japan remains the largest single holder, China’s participation is still crucial when it comes to demand.
According to Torsten Sløk, partner and chief economist at Apollo Global Management, the parent of Yahoo Finance, foreign investors currently hold around $7 trillion in US Treasurys, roughly 30% of the total market. A pullback in that demand would likely drive long-term yields even higher.
Still, Jones said that isn’t her biggest concern, at least not right now.
“We’re still looking at the highest tariff level in 100 years and a high level of uncertainty,” she said. “I think that there are plenty of other risks to worry about.”
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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