The great Treasury selloff is gaining steam—not in a good way. For the third day running, long U.S. government bonds have come under heavy fire, as investors begin to question whether the world’s most trusted refuge is, in fact, becoming the financial equivalent of a leaky lifeboat. Yields on 10 and 30-year Treasuries surged by over 20 basis points in Asian trading, bringing the 30-year to a hair-raising 4.97%—a full 60 basis points higher than just last week.
The trigger? A toxic cocktail of disappointing auction results, tariff tantrums from the White House, and a deepening suspicion that U.S. debt, once untouchable, might not be quite so sacred after all.
Long-term Treasuries are spectacularly failing to behave like the safe havens they once were. Indeed, the divergence in yield curves has now reached historical proportions: the 10-year yield exceeds the 2-year by more than 70 basis points, the 30-year by over a full percentage point—the steepest slope since early 2022.
To make matters even more poetic, interest rate swaps—designed to hedge bond risk—are now trading below Treasury yields. In other words, investors are paying for the privilege of avoiding Treasuries. If that doesn’t raise eyebrows in central banking circles, one wonders what will.
Let’s not forget Monday, described by seasoned traders as the wildest day since the pandemic’s peak in March 2020. A spike in Treasury volatility, a surge in the VIX, and soaring monetary policy uncertainty have reignited a discussion that was once thought buried: could we be witnessing the beginning of a regime change in global fixed income?
We’ve seen this film before. In 2020, the great basis trade unwound violently, leading to evaporating liquidity in the Treasury market and forcing the Fed to intervene. This time, yields are higher, pain is deeper, and the Fed’s room for manoeuvre is narrower. But the script feels disturbingly familiar.
Adding to the drama, auction participation is weakening. Tuesday’s $58 billion 3-year Treasury sale saw primary dealers—the buyers of last resort—snap up their largest share in over a year. This hardly bodes well for upcoming 10- and 30-year auctions, especially when duration risk has once again become a dirty word.
As Trump’s tariff policy begins to wreak stagflationary havoc, investors are already scouting for alternatives. German bunds and Japanese government bonds—once dismissed for their meagre returns—suddenly look rather appealing when hedged against a tumbling dollar.
Yet even Japan’s 30-year debt sale this week met with tepid demand, pushing yields even higher. Could it be that every significant sovereign is now suffering the aftershocks of U.S. unpredictability?
We may be witnessing the end of Treasuries as the world’s de facto safe haven.” If so, that would mark the biggest shift in global capital flows since the post-war Bretton Woods system unravelled.
The irony is rich. At the very moment when investors are most desperate for safety, the very asset class built on U.S. credibility is showing signs of fray. If Treasury yields are surging due to fundamental concerns—not merely positioning—then markets are staring down a historic repricing of risk.
The Fed, meanwhile, remains wedged between a rock and a tariff wall. Jerome Powell may be in no rush to cut rates, but if yields continue to spiral and recession risks mount, he may have no choice but to pick a side: inflation discipline or market stability. But, tariffs are inherently stagflationary. The Fed won’t be able to bail out markets like it did in the past.
Investors expecting four rate cuts this year might want to revisit their history books. This isn’t 2019. Back then, the Fed could act freely because inflation was benign. Today, the Fed faces a president wielding tariffs like a wrecking ball and a bond market that’s blinking red.
A new global order may be emerging—one in which the mighty U.S. Treasury market is no longer a pillar of calm, but a source of its own volatility. If this week’s moves are any indication, the days of sleepwalking through auctions and expecting the Fed to clean up the mess may be over.
Fasten your seatbelts. The age of easy money is long gone—and with it, perhaps, the myth of the invincible dollar bond.