Donald Trump's new tariff policies spark volatility in the U.S. Treasury bond market: 30-year Treasury yield jumps 50 basis points within a week

Taiwan • Business • 05/10 15:02
Donald Trump's new tariff policies spark volatility in the U.S. Treasury bond market: 30-year Treasury yield jumps 50 basis points within a week

In April 2025, the U.S. Treasury bond market experienced significant volatility due to a new round of high tariff policy announced by Trump on April 2. The 30-year Treasury yield surged nearly 50 basis points in a single week, marking the largest increase since 1987. Perry, the manager of SOMA at the New York Federal Reserve Bank, pointed out that the large-scale closing of "swap spread trades" by leveraged investors was one of the primary reasons for the abnormal spike in yields. The Trump administration subsequently delayed some of the tariff measures, and the Federal Reserve increased liquidity support to stabilize the market.

Key Updates

05/12 01:24

The US-China trade talks wrapped up in Geneva: An agreement was reached to cut the $1.2 trillion trade deficit and set up a consultation mechanism.

On May 11, 2025, the United States and China concluded a two-day high-level economic and trade talks in Geneva, Switzerland, where they reached a consensus on several key issues. This marked the first high-level talks since President Trump imposed tariffs on Chinese goods earlier this year. The agreement aims to reduce the U.S. trade deficit by $1.2 trillion and establish a mechanism for U.S.-China economic and trade consultations. Both parties are set to release a joint statement on May 12, detailing the agreement.

05/11 22:55

The US and UK Reach a New Tariff Agreement, Talks Between the US, China, and Switzerland Begin: A Ray of Hope for the Global Trade Situation

In May 2025, the United States and the United Kingdom reached a bilateral trade agreement under a new tariff policy, which grants tariff reductions for British-made automobiles and steel products, reducing the base tariff to 10%. U.S. and Chinese officials met in Geneva, Switzerland, agreeing to set up a mechanism for economic and trade consultations, and a joint statement will be released on May 12. Market sentiment remains optimistic, U.S. Treasury yields have remained stable, and the Federal Reserve kept interest rates unchanged at its May 7 meeting, with the benchmark rate range at 4.25% to 4.50%.

05/11 18:25

Trump's announcement of a 145% tariff sparks market volatility, as U.S. inflation data indicates rising trends.

On April 2, 2025, U.S. President Donald Trump announced a 145% tariff on Chinese imports and threatened to take similar measures against Mexico, the EU, and other countries, leading to global market turmoil and sparking domestic controversy in the United States. April U.S. inflation data showed an estimated 0.3% increase in core CPI, indicating the potential impact of the tariff policy on prices. This policy, led by Trump's economic advisory team, aims to bring manufacturing back to the United States and act as leverage in trade negotiations.

05/11 14:25

An Experiment by American Small Business Owners Reveals Consumer Willingness to Pay High Prices for "Made in USA" Products: Results That Give Food for Thought

Afina Showerhead Filter founder Ramon van Meer tested if consumers are willing to pay more for products "Made in USA" amid US-China trade tensions. He sold two identical products on his website, one priced at $129 made in China and the other at $239 made in the USA. The results showed that 584 customers opted for the China-made version, while no one purchased the USA-made version, indicating that consumers are not willing to pay extra to support American manufacturing. Van Meer plans to shift production to other Asian countries to cut costs.

05/11 03:53

Thaw in US-China Trade War: Geneva Talks Begin, Four Major Sectors in the Taiwan Stock Market Preparing for Rotation

On May 10, 2025, high-level representatives from the US and China held their first formal talks in Geneva, Switzerland, in an attempt to ease economic tensions caused by punishing tariffs. The talks, led by US Treasury Secretary Besant and Chinese Vice Premier He Lifeng, lasted eight hours and are set to continue on May 11. The Taiwan stock market showed signs of capital rotation, with four major sectors likely to be affected. Ukraine and the India-Pakistan regions announced ceasefires, easing global market sentiment.

05/10 15:02

Donald Trump's new tariff policies spark volatility in the U.S. Treasury bond market: 30-year Treasury yield jumps 50 basis points within a week

In April 2025, the U.S. Treasury bond market experienced significant volatility due to a new round of high tariff policy announced by Trump on April 2. The 30-year Treasury yield surged nearly 50 basis points in a single week, marking the largest increase since 1987. Perry, the manager of SOMA at the New York Federal Reserve Bank, pointed out that the large-scale closing of "swap spread trades" by leveraged investors was one of the primary reasons for the abnormal spike in yields. The Trump administration subsequently delayed some of the tariff measures, and the Federal Reserve increased liquidity support to stabilize the market.

05/10 11:29

Sino-American trade talks in Geneva halted: Chinese delegation abruptly withdrew from the venue

On May 10, 2025, high-level economic and trade negotiations between the US and China were held in Geneva, Switzerland. The Chinese delegation abruptly left the venue, causing the talks to be interrupted, and the US representatives subsequently left as well. This meeting marked the first formal engagement between the two sides since the escalation of high-tariff tensions, aimed at finding a way to ease tensions. Both parties had previously expressed openness to dialogue, but the sudden turn of events cast doubt on the future of the negotiations.

05/10 07:29

Impact of Trump's 2025 Tariff Policy on U.S. Supermarkets: Costco's Five Major Imported Food Prices Face Pressure

In April 2025, President Trump of the United States announced the imposition of a minimum tariff of at least 10% on all imported goods, and punitive tariffs of up to 145% on products from specific countries, leading to global trade upheaval. This policy is intended to revitalize American manufacturing but has triggered price fluctuations in the U.S. retail market. Five key categories of imported foods at Costco—grains, coffee, wine, cheese, and cooking oil—have been severely impacted, resulting in price increases. This article examines the specific effects on these products and the market's reaction.

05/10 02:00

The US-UK Trade Agreement and the US-China Negotiations Boost Market: Oil Prices and Tesla Stock Rise, and Gold Climbs Due to a Weakened Dollar

On May 10, 2025, US-China high-level trade negotiations took place in Geneva, and the US and UK reached a bilateral trade agreement, enhancing market confidence. Oil prices rose, driven by trade optimism and Middle Eastern tensions, while Tesla's stock price rebounded thanks to tariff reductions and advancements in its self-driving taxi program. Gold prices rose due to the weakening dollar and geopolitical risks. This article examines how these events affect oil prices, Tesla's stock price, and gold prices.

05/09 22:31

Adafruit, a New York electronics company, announced a price increase due to a $36,000 tariff burden.

Adafruit Industries, an electronics hardware company based in New York City, USA, announced it will raise prices on some products due to receiving an import duty bill totaling $36,126.46. This cost arises from the high tariff policies imposed by the United States on China and other countries, with a tax rate of 145% specifically applied to Chinese products. Adafruit stated that this is putting pressure on their cash flow and may result in unsold inventory. This situation highlights the operational challenges American companies face under the current trade policies.

Tariff Policy Sparks Initial Market Risk Aversion, Then Reverses

On April 2, the Trump administration announced the implementation of "reciprocal tariff measures" on most trade partners, imposing tariffs as high as 145% on Chinese imports and proposing rates ranging from 10% to 25% for other countries. This move initially triggered market risk aversion, with funds flowing into the U.S. Treasury market, driving up bond prices and pushing down yields.

However, this wave of risk aversion lasted only a few days. As concerns about the tariff policy potentially causing inflation and economic slowdown intensified, long-term Treasury yields quickly reversed course and increased. According to a report by United Daily News (UDN), the 30-year U.S. Treasury yield rose nearly 50 basis points within a week, marking the largest weekly increase since 1987. The 10-year yield also rose to 4.39%, indicating a noticeable steepening of the long-term yield curve.

Perry: Unwinding of Swap Spread Trades as One of the Main Reasons for Abnormal Yield Surge

During this market turmoil, Federal Reserve official Perry provided key insights. He pointed out that many highly leveraged investors had bet on "swap spread trades" (a strategy involving interest rate swaps), expecting U.S. long-term Treasury yields to be lower than interest rate swaps of the same maturity. These trades were typically based on expectations of relaxed banking regulations, believing that banks would increase demand for Treasuries, thereby lowering yields.

However, as Trump's tariff policy sparked concerns about inflation and fiscal deficits, long-term yields rose instead of falling, leading to rapid losses in these highly leveraged positions. Perry noted that these investors, in order to manage risk, were forced to unwind positions en masse in a short period, selling off long-term Treasuries and further pushing up yields. He stated, "The unwinding of swap spread trades seems to be one of the reasons for the abnormal movement in U.S. Treasury yields."

No Abnormality in Basis Trades, Market Misjudges Risk Source

In the early stages of market turmoil, some media and analysts pointed fingers at "basis trades" (a strategy involving the difference between cash and futures prices), suggesting that their unwinding might be the main cause of the bond market's severe volatility. However, Perry clearly stated that the Federal Reserve found no evidence of large-scale unwinding of basis trades. He emphasized that the real cause of the yield surge was the rapid unwinding of swap spread trades.

According to a report by Wolf Street, these trades were highly leveraged, and when yields rose in the opposite direction, risk management mechanisms prompted investors to exit quickly, creating selling pressure. Due to the large scale of these trades, they had an amplifying effect on market prices, leading to sharp yield fluctuations in a short period.

Market Reaction and Policy Adjustments

In response to the severe bond market volatility, the Trump administration announced in mid-April a 90-day suspension of tariff measures on most trade partners in an attempt to stabilize market sentiment. Nevertheless, the high tariffs on China remained unchanged, indicating no fundamental change in policy direction.

On the other hand, the Federal Reserve also signaled liquidity support. Perry revealed that the Fed's Standing Repo Facility (SRF, a tool for providing liquidity) would expand its operation hours, previously limited to 1:30 to 1:45 PM Eastern Time, to include morning sessions to address potential funding pressures in the market.

Long-term Yield Volatility Draws Wider Attention

This event highlights the high sensitivity of long-term Treasury yields to policy and market sentiment. According to a report by American Funds, the 10-year yield once rose to 4.385% in early April, while the 30-year yield reached 4.833%. These figures indicate that despite stable short-term rates, long-term rates experienced significant volatility due to market expectations and trading behavior.

Additionally, Perry pointed out that rumors about foreign investors offloading U.S. Treasuries were unfounded. In fact, the proportion of foreign participation in U.S. Treasury auctions rose to 9.7% in April, up from 8.6% in March. This shows that despite market volatility, foreign demand for U.S. Treasuries has shown resilience.

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