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The yields on 10-year U.S. Treasuries have fallen below 4 percent for the first time since Donald Trump won the previous year’s election. This decline is attributed to investors seeking refuge from market instability instigated by the U.S. president’s tariff hikes. On Friday, the yields on 10-year U.S. Treasuries decreased by more than 0.3 percentage points to 3.93 percent, marking their most substantial week since August as prices surged.
U.S. Treasuries experienced a rally amid a sell-off in U.S. stocks and the dollar, both of which underwent significant declines on Thursday. This rally has overshadowed the performance of other safe-haven assets, such as German government bonds and gold. Investors are increasingly purchasing U.S. debt, betting that the imposition of tariffs will push the U.S. economy towards a recession. However, fund managers see this movement as a return to a more typical pattern where significant declines in equity markets drive investors towards safer government debt.
According to Nicolas Trindade, a senior portfolio manager at Axa’s investment management, U.S. Treasury yields have sharply declined as investors shift away from riskier assets, anticipating that the Federal Reserve may cut rates to prevent a recession. This situation contrasts with 2022 when both risk assets and sovereign bonds experienced sell-offs.
These developments highlight the ongoing appeal of Treasuries as a safe investment haven, despite a sell-off influenced by Trump’s challenges to the global trade system, which has disproportionately impacted U.S. assets. Fraser Lundie, head of fixed income at Aviva Investors, indicated that the re-emergence of a negative correlation between government bonds and risky assets is a positive sign. Such relationships had been uncommon in recent years, signifying a resurgence of traditional market dynamics, as showcased by the 10-year Treasury yield dipping below 4 percent.
Other traditional safe-haven assets have similarly gained, with German 10-year yields falling by 0.09 percentage points this week and Japanese bonds rallying more sharply, with 10-year yields declining by 0.37 percentage points. Gold, which had reached several all-time highs before Trump’s tariff announcements, has seen a slight decrease since then.
Long-term borrowing costs in the U.S., which set a global risk-free benchmark and influence the cost of debt across the U.S. economy, are being closely watched by the U.S. administration. Treasury Secretary Scott Bessent has expressed a keen interest in the 10-year yield. The recent sharp increase in yields has raised questions regarding the sustainability of U.S. debt amid a significant fiscal deficit. There has also been speculation about possible U.S. government intervention in the Treasuries market as part of a so-called Mar-a-Lago accord to weaken the dollar. However, the current administration has stated that such an accord is not currently on the agenda.
Recently, it is the bleak economic outlook that has driven Treasury yields and the dollar lower.
