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Treasury yields soared on Friday, extending a weeklong run-up that has defied expectations and threatened the Treasury market's status as a safe haven in times of stock market turmoil.
The yield of the 10-year Treasury, a key factor in determining interest rates on consumer loans, climbed as high as 4.59% last Friday before falling slightly. The yield recently stood at 4.5%, 6 basis points above yesterday's close.
Treasury yields increased this week despite the fact that tariffs were implemented on Wednesday. The stock market was impacted and fears of a slowdown in the economy were raised. The 10-year yield has skyrocketed more than 50 basis points—or half a percentage point—in the last five days, its largest weekly increase since 2008.
The bond sell-off—bond yields and prices are inversely related, meaning yields rise when prices fall—has defied standard market logic. Bond prices tend to rise when stocks decline as investors turn to the relative safety offered by U.S. Treasurys. Bond prices also tends to increase when the risk of recession becomes more acute. Investors who expect the Federal Reserve to lower interest rates as a response to a slowdown purchase Treasurys in order to lock in the current high rates.
Experts have suggested a few potential culprits of the recent volatility in the bond markets. Some believe that Trump’s new tariffs will cause inflation to rise, forcing the Fed to maintain high interest rates.
Others have speculated that Trump's antagonistic trade and foreign policy has reduced global demand for Treasurys, the world's most widely held sovereign debt. China is the largest holder of U.S. bonds, and some experts say it could wreck the Treasury market if it dumps bonds.