“If there is reincarnation, I would like to come back as the bond market. You can intimidate everybody.” James Carville, Bill Clinton’s political adviser.
As only the bond market can, a push-back to tariffs has started, causing US President Donald Trump to blink.
“Investors view Treasuries (UST) historically as risk-free or near-cash assets i.e., assets that retain their value and can be easily sold during both normal and stressed market periods. Unsurprisingly then, Treasuries have tended to be viewed as safe havens for investors during market crises.
“Their stability means US Treasuries underpin the strategies of many asset managers also often serve as benchmarks for other fixed-income securities and hedging positions; as a result, U.S. Treasury yields have an impact on the rates that consumers, businesses, and governments across the globe pay to borrow money.”
These two paragraphs are the description of US Treasuries by the Securities Industry and Financial Markets Association (Sifma), a trade association in the US. Sifma represents the interests of securities firms, banks, and asset management companies.
Treasury securities – including Treasury bills, notes and bonds – are debt obligations issued by the US Treasury and the Treasury market is the largest and most liquid bond market in the world.
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On April 8, the Treasury market had the temerity to push back on an increasingly powerful US president.
The Treasury Department auctioned US$58 billion in 3-year Treasury notes on April 8 in the first coupon supply since Trump announced higher tariffs on April 2. Yields remained higher after what was described as a “weak” auction.
The single largest holder of US Treasuries, as of Jan 31, 2025, based on data by the Treasury is Japan, with US$1,079.3 billion. China is second with US$760.8 billion, followed by UK with US$740.2 billion. Hong Kong is no 12 with US$255.9 billion and Singapore is no 13 with US247.6 billion. The EU is the largest collective owner of US Treasuries. The more Treasuries you own, in the president’s own paraphrased words, the more cards you have.
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Market watchers on US news and talk shows have suggested that Japan sold Treasuries on April 8. Japan has announced it will negotiate its tariffs with the Trump administration. The EU will hold off imposing reciprocal tariffs on US goods for 90 days.
The EU and China have the ability and muscle to push back on the tariffs. Both economies could, if they wished, stop buying Treasuries, pushing up the yield, and forcing the US administration to walk back on punitive tariffs.
Why the 10-year UST is so important
US Treasury Secretary Scott Bessent has said on Fox News and other interviews that the 10-year US Treasury yield is the most important rate in the US. If so, it is likely the most important rate in the world.
In an interview on Jim Acosta’s Podcast on April 10, the 2008 Nobel Prize Winner for Economics, Paul Krugman, said if the bond market starts to freeze up, the US’ economic rise could come to a halt. “People could start to lose faith in US government debt, which we’ve seen on the edges. The whole world runs on US government debt. Treasury bills are the ultimate collateral.”
As the world’s ‘risk-free’ asset, Treasuries are used as a benchmark to determine the price of everything from stocks to sovereign bonds to mortgage rates while serving as collateral for trillions of dollars of lending a day.
The US Treasury market, valued at nearly US$29 trillion, underpins everything from global reserves to corporate borrowing costs. Its stability is central to the functioning of the global financial system.
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Treasury yields surged on April 8 and have remained elevated since then. Market watchers attribute this not just to the poor auction but to selling by the largest holders of US Treasuries, which could include Trump’s most tariffed economies.
Bloomberg reports that foreign reserve managers, including China, may be reconsidering their U.S. government debt holdings due to Trump's trade policies. Reuters noted that much of the selling was done by hedge funds to raise cash for margin calls, as the value of their portfolios continues to decline amid the ongoing market rout.
Economic, financial shock
Krugman says the tariffs would be one of the biggest shocks to the US economy. “The tariffs are 10 times as big as the Smoot-Hawley tariffs and trade is now three times more important to the economy. When you hit the economy so hard, there are financial implications. Hedge funds could be forced into fire sales of their portfolios.”
Mansoor Mohi-uddin, chief economist, Bank of Singapore says “If US equities, US Treasuries and the USD all keep falling rapidly together then the risks will increase that financial markets will suffer the worst-case scenario of a 2008-style global crisis if market dislocations cause a major fund or bank to fail.”
He adds, somewhat hopefully that he expects negotiations between the US and China to end the stand-off quickly. “Faced with falling markets, a potential US recession and 2026 mid-term elections, Washington will need to compromise more than Beijing. A trade deal would still result in our base case of US stagflation and weaker Chinese growth but would help financial markets start recovering this year’s steep losses,” the BoS economist says.
The long and short of what happened in the bond market in the week of April 7-11 is that it pushed back on a US president’s attempt to change a rule-based global order.
Markets to see another dead cat bounce next week
The Straits Times Index experienced the archetypal dead cat bounce on April 10 following huge oversold pressures. The candlestick chart has formed a spinning top which implies that buyers and sellers are in equilibrium. Since short-term indicators are at their low, there could be another dead cat bounce.
Based on the candlestick chart patterns, resistance appears at 3,600, and support has been established at 3,393. The 200-day moving average is at 3,667. The STI ended the week of April 7-11 at 3,512.
For a sustained rally, traders and market players need patience, and wait for short term indicators to start showing positive divergences with the STI. Stay tuned.
