1 week Ago By BNNBloomberg
U.S. Treasuries gained, pausing a multi-day selloff, as bond traders around the world grappled with U.
S. President Donald Trump’s surprise pause on tariffs. Yields on two-year Treasuries fell three basis points to 3.
88%, paring a sharp jump on Wednesday that saw rates rocket higher by as much as 30 basis points. U.K.
bonds also rallied after borrowing costs hit their highest since 1998 this week. Trump’s abrupt about-face spurred steep gains for stocks and a surge in short-term yields across much of Europe and Asia as traders greeted the reprieve by rapidly scaling back bets on interest-rate cuts. The yield on the German two-year note soared nearly 20 basis points before paring on expectations that the European Central Bank will need to ease less.
The U.S. faced massive pressure from business leaders and investors to reverse course; Trump said he backed off as people were “getting a little bit yippy, a little bit afraid.
” Those nerves will get a different test on Thursday, with the government due to auction 30-year debt just hours after it published a report on inflation that could give traders more colour on the U.S. Federal Reserve’s room to lower rates.
“The ‘blink’ came sooner than we expected, probably forced by the markets,” said Mohit Kumar, strategist at Jefferies International. “The reversal is in sharp contrast to the fanfare with which Trump unveiled his tariff policy just a week ago.” That U-turn, via a 90-day pause on tariffs for most countries — with China being a notable exception, gave some respite to the U.
S.’s long-term borrowing costs, which had at one point surged above 5%. Still, 30-year bonds lagged the broader uptick in Treasuries on Thursday, with yields little changed before a US$22 billion auction of the debt at 1 p.
m. in New York. Ahead of that, a report is expected to show a gauge of consumer prices eased to 2.
5% from 2.8% in March. “Bonds are signalling that the pause is significant, yet not much has fundamentally changed,” ING rates strategists led by Padhraic Garvey wrote in a note published Thursday.
“Markets will not easily forget these episodes with wide market swings and thus the demand for safe assets should remain elevated.” In Asian trading, Australia’s three-year bond yields surged Thursday by the most since September 2022. New Zealand’s two-year yields jumped nine basis points.
Japan was an outlier, with its longer-end bonds facing the most selling pressure: 10-year JGB yields rose 13 basis points to 1.40% at one point. Money-market swaps now show the ECB easing about 74 basis points in total, and a similar amount of rate cuts by the Bank of England.
Both markets had indicated three cuts fully priced, with a chance of a fourth. Traders are now bracing for a period of prolonged negotiations that could weigh on markets for months. The recent movements in the Treasuries market have fueled speculation among traders about who has been selling.
Some investors are worried about a blow-up of the basis trade, where hedge funds profit from the difference between futures and spot prices, others about an implosion of trades in Treasury swaps. Another theory is that central banks are cutting their holdings of Treasury bonds. And amid the on-again, off-again whiplash of Trump’s tariffs, investors are facing the increasingly complicated task of trying to figure out how shifts in global trade will impact the twin levers of growth and inflation — both important drivers of rate expectations.
“This period of instability will continue for the next couple of weeks,” said Tsutomu Soma, a bond trader at Monex Inc. in Tokyo. “No one knows what shape these tariffs are ultimately going to take and everyone’s looking at U.
S. yields to trade — so brace for more chaos ahead.” With assistance from Masaki Kondo, Finbarr Flynn, Mia Glass and Alice Atkins.
Ruth Carson and Alice Gledhill, Bloomberg News ©2025 Bloomberg L.P..
