US Treasury Sell-Off Amidst Elevated Market Tensions

• Treasury market sell-off exposed structural risks and triggered yield spike.

• US-China tariffs escalated tensions, worsening market instability and inflation fears.

By Kenzie Aryasatya, Fayza Nawra Avanitanya, Muthia Noor Safitri, Imam Fakhri Prayogo Harianto 

April 11, 2025 at 16:30 GMT+7

The US Treasury market experienced a sharp and unsettling sell-off, rattling global investors and sending benchmark yields to multi-month highs. The 10-year yield spiked as high as 4.516% on Wednesday (4/11) before easing slightly to 4.451%, marking one of the largest intraday moves since early 2020.

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This surge triggered volatility across asset classes, and demand for traditionally safe assets briefly vanished. While equity markets initially dipped on the tariff news, they largely stabilized following President Trump’s decision to pause tariffs on most nations.

In contrast, the bond market continued to deteriorate due to internal liquidity stress, revealing structural fragilities in what is often considered one of the world’s safest asset classes. Analysts now warn that the US government debt is more vulnerable to shocks than previously assumed.

Prices of Treasury debt have risen in response to concern over the economic outlook in recent weeks. | Source: BLOOMBERG

The deeper cause of the bond market turmoil lies in the structural buildup of risk within the market itself, not just geopolitical headlines. For a long time, hedge funds had been heavily involved in a popular strategy known as the “basis trade”, which seeks to profit from small price differences between US Treasury bonds and futures. 

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These trades are often highly leveraged, relying on borrowed money to amplify returns. When yields jumped, those trades quickly turned unprofitable, triggering margin calls and forced selling. As funds rushed to liquidate their positions, selling pressure accelerated, driving yields even higher.

Clearinghouses increased collateral demands, and market liquidity dried up rapidly. A temporary loss of confidence rippled across the fixed-income market, drawing parallels to the “dash-for-cash” crisis of March 2020.

U.S. dollar banknotes are seen in this illustration taken March 19, 2025 | Source: REUTERS

While the primary source of market stress was structural, geopolitical risk acted as the catalyst. President Donald Trump’s 145% tariff on Chinese imports met with an 84% retaliation from Beijing, marking the sharpest US-China trade escalation since 2019 and raising concerns over inflation and supply chain disruptions.

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Although the administration delayed tariff increases for most trading partners, renewed trade uncertainty added to market fragility. Rising yields have also intensified scrutiny of the US fiscal outlook, as higher interest costs increase the burden of servicing federal debt.

The Congressional Budget Office projects that net interest payments could surpass defense spending within a decade. With the Federal Reserve keeping rates on hold and core inflation data showing mixed signals, Treasuries are becoming a focal point for both monetary and fiscal risk in the months ahead.

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Sources:

CNBC

CNN

Jakarta Globe