Government bonds have been selling off while stocks have plunged. That’s unusual, and it’s raising concerns that global investors are losing some of their long-standing confidence in America.
Stocks are generally seen as a risky type of asset, while bonds are known as a “safe haven,” with the two typically moving in opposite directions. That’s because government bonds — a type of security sold to help finance expenditures, to be paid back to buyers with interest over a set period — are backed by the full faith and credit of the United States.
The same can’t be said for publicly traded companies and their share prices. So when stock markets are booming and investors are excited to bet on the performance of American businesses, demand for lower-risk bonds dries up. During times of turbulence, the reverse usually happens.
We don’t know exactly why bonds are gyrating so much.
Barclays Analyst Ajay Rajadhyaksha
Instead, the two markets have seen simultaneous sell-offs. The premier U.S. government bond, the 10-year Treasury note, saw its yield surge above 4.5% this week.
Bond prices and yields are inversely correlated, so rising yields signal lower appetite for the bonds. The 10-year Treasury yield ended the week more than 12% higher, while the S&P 500 closed out a week of volatile trading up 5.7%, rebounding late Friday after a series of brutal losses.
“We don’t know exactly why bonds are gyrating so much,” Barclays analyst Ajay Rajadhyaksha said in a note to clients Friday that he titled “This is not normal.”
Soaring yields on 10- and 30-year Treasurys make it costlier for the federal government to borrow money. It’s also bad news for consumers because the 10-year note’s yield is directly linked to rates for mortgages, credit cards and personal and business loans.
“This matters to nearly all Americans,” said Natalie Colley, a partner and financial planner at the New York-based firm Francis Financial.
“Gone are the days of a pension,” she said, referring to the more than 70 million U.S. savers with access to 401(k) retirement accounts tied to markets. Volatility on Wall Street has unnerved many account holders in recent weeks, forcing some financial planners to do double duty as therapists to rattled clients.
“If Treasurys are not a safe-haven asset, that has major implications for balance sheets across the board — businesses, nonprofits, pensions, households,” said Ernie Tedeschi, a former top economist in the Biden administration who’s now the director of economics at Yale University’s Budget Lab. “So much of world finance is predicated on U.S. Treasurys being safe.”
He called recent bond market trends “the most concerning piece of data since the tariffs began.”
“It’s showing a deterioration in confidence in the U.S.’s place in the world,” he said.
Treasury Secretary Scott Bessent has pushed back against such concerns, telling Fox Business on Wednesday, “There is nothing systemic about this. I think that it is an uncomfortable but normal deleveraging that’s going on in the bond market.”
But experts see warning signs elsewhere, too. The value of the dollar relative to other global currencies has nosedived. This week it suffered its biggest drop since 2022 and ended Friday at its lowest level since September.
“Everything in the U.S. is not doing well right now,” Kyla Scanlon, a financial educator and author of “In This Economy?: How Money and Markets Really Work,” told her TikTok followers this week. “The U.S. dollar is getting crushed.”
She chalked up the currency’s decline to “the erratic trade policy that we’ve seen,” adding: “Markets don’t believe that the U.S. has a stable or clear economic plan.”
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, flagged similar concerns.
“Normally when you see big tariff increases, I would have expected the dollar to go up. The fact that the dollar is going down at the same time I think lends some more credibility to the story of investor preferences shifting,” he told CNBC on Friday.
There are several other possible explanations. One has to do with the way hedge funds bet on bond markets. Another could be that investors are anticipating a run-up in inflation and demanding higher interest rates now so they don’t lose money in the future.
“Maybe they feel, or the market feels, that the actions around tariffs are actually going to create upward inflationary pressure,” said Douglas Boneparth, president of Bone Fide Wealth, an advisory firm in New York. “That very well could be part of the puzzle here.”
Even experts who are more hesitant to assign a cause to the bond sell-off say geopolitical factors are hard to ignore.
So much of world finance is predicated on U.S. Treasurys being safe.
Ernie Tedeschi, director of economics, yale budget lab
“The idea of other countries turning away from America, I don’t want to go down that rabbit hole necessarily,” said Lee Baker, founder of Claris Financial Advisors in Atlanta. “But in this particular instance, America turned away from everybody else” with steep new trade barriers.
For now, Baker and other wealth advisers are cautioning clients not to react hastily to the recent volatility. Younger investors who aren’t close to retirement — and typically have less exposure to the bond market — should stay the course, Colley said.
“Making sure that you’re in an appropriate asset allocation for your stage in life” and building up some emergency savings can help create a “financial moat that will insulate any investor at any point in their investing career from feeling panic around what’s going on in the stock market,” she said. If possible, she recommends keeping at least six months’ of cash on hand for a rainy day.
Older retirement savers can consider some protective measures, Baker said.
His firm has been building buffer exchange-traded funds — so-called “defined-outcome” ETFs tied to options contracts — into clients’ portfolios. These funds tend to be more expensive and typically cap potential gains, but they offer robust downside protections and have seen a recent surge in interest. BlackRock launched a new iShares buffer ETF earlier this year, billing it as a way of “mitigating risk while participating in market growth.”
Baker added that “there’s a whole lot of other stuff in the world beyond stocks and bonds” to consider investing in, such as real estate, infrastructure and private equity. But he cautioned that it’s usually a good idea to consult a qualified adviser first, partly to avoid making important money moves out of fear.
“It’s probably not a good idea to go whole hog in any of these,” he said, “but we can certainly reduce your downside while giving you some upside with a combination of these things.”
