Treasury Turmoil: Tariff Fears Spark Wild Ride in U.S. Bills Market

The U.S. Treasury bills market has experienced significant turbulence in early April 2025, driven by a combination of policy uncertainties and shifting investor sentiment. The upheaval began gaining traction around April 8, when concerns over proposed tariffs, particularly a potential 104% tariff on Chinese goods, started to unsettle markets. This policy risk sparked fears of reduced foreign demand for U.S. debt, as tariffs could disrupt global trade and weaken confidence in U.S. assets. Treasury yields, particularly on the 10-year note, began climbing sharply, reaching 4.49% overnight, signaling a sell-off as investors moved away from bonds to cash. The market’s reaction reflected a broader anxiety about the sustainability of U.S. debt financing under escalating trade tensions, with auctions for longer-dated securities seeing weaker demand and dealers absorbing excess supply.

By April 9, the sell-off intensified, with Treasury bonds, traditionally viewed as safe-haven assets, losing appeal. Investors grew wary of holding U.S. debt amid fears that tariff-driven trade wars could lead to higher inflation and deficits, pushing yields higher to compensate for perceived risks. The market saw one of its most dramatic sessions in recent memory, with the rapid rise in yields indicating a shift in sentiment. Even short-term Treasury bills, typically less volatile, faced pressure as investors sought liquidity, preferring cash over fixed-income securities. This move underscored a growing perception that U.S. Treasuries might no longer offer the same security in a world of aggressive trade policies and geopolitical uncertainty, further eroding demand at poorly received auctions.

On April 10, the Treasury market showed signs of stabilization, though the mood remained cautious. A 30-year bond auction performed better than expected, leading to a slight decline in yields from their recent peaks. This outcome suggested that some investors saw value in longer-dated securities after the sharp sell-off, though the broader market dynamics remained fragile. The earlier spike in yields had been exacerbated by technical factors, such as hedge funds unwinding leveraged positions in the “basis trade,” which added to the market’s volatility. Despite the modest relief, the Treasury bills market continued to grapple with the implications of policy uncertainty, with short-term yields reflecting heightened sensitivity to inflation expectations and potential Federal Reserve responses. The events of these few days highlighted a market caught between fear of economic disruption and tentative efforts to find a new equilibrium.