Stocks Are All Over the Place. Are Bonds Still Safe?

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It’s been a rollercoaster of a week for global markets. As President Trump goes back and forth about the size and scope of his tariffs, Bloomberg is  watching one market especially closely: bonds. US Treasuries are widely seen as one of the world’s safest assets, especially in periods of financial volatility. But will they hold?

On today’s episode of the Big Take DC, hosts Sarah Holder and Saleha Mohsin sit down with Bloomberg chief correspondent Liz Capo McCormick to unpack a week of sharp selloffs in the bond market, and how the swings could impact mortgage rates and student loans.Listen and follow The Big Take DC on Apple Podcasts, Spotify or wherever you get your podcasts.Terminal clients: click here to subscribe.Here is a lightly edited transcript of the conversation:

Sarah Holder: Just a few hours ago as of this taping, President Trump announced increased tariffs of 125% on China and a 90-day pause on tariffs for dozens of other countries. It’s the latest in what has been a whiplash kind of week. Last Wednesday, the president introduced tariffs on all US imports, with higher levies on some of its largest trading partners. The announcement sent markets into chaos. And through it all, Bloomberg has been watching the movement in one market especially closely: the bond market. US Treasuries have long been considered a safe haven — a place to put money in times of economic turmoil. But in the days before Trump’s reversal, investors started dumping them. 

Bloomberg TV: This is a historic week for the Treasury market. Those long-end yields have risen some 50 basis points just from Monday alone.

Holder: That sent yields surging by the most we’ve seen since the start of the pandemic. And higher yields can affect everything from auto loans to student loans and mortgage rates. Some of the pressure subsided earlier today. Treasury Auction results were announced, showing strong demand for 10-year debt. And then came the tariff news. Here’s President Trump speaking outside the White House this afternoon.

Donald Trump: No,  I was watching the bond market. The bond market is very tricky. I was watching it. But if you look at it now, it’s beautiful. The bond market right now is beautiful. But yeah, I saw last night where people were getting a little queasy.

Holder: But Treasuries aren’t out of the woods yet. And on Wednesday, just hours before Trump’s announcement of the 90-day pause, Bloomberg chief correspondent Liz Capo McCormick told me a closer look at the bond market has made one thing clear: that right now, nothing is clear.

McCormick:   The whole administration is giving what some people say mixed messages. There’s not a lot of clarity. There’s so much uncertainty that we’re just not sure. It’s almost, it’s coming too fast and furious and unclear, and the market can’t process it all.

Holder: This is the Big Take DC podcast from Bloomberg News. I’m Sarah Holder. Today on the show: my co-host Saleha Mohsin and I sat down with Liz — to unpack the US bond market’s reaction to President Trump’s trade war, what’s going on and and what it all means for the US economy — and its position on the world stage.

Holder: I am fortunate to be joined, not by one expert, but by two experts, Saleha Mohsin and Liz Capo McCormick. Welcome to you both. We’ve seen an immense amount of volatility in the markets over the past few weeks, overnight and throughout the day today, and one of the biggest storylines has been the bond market. Can you just walk us through the selloff in US Treasuries?

McCormick: Yeah, it’s, been really a kind of an incredible selloff. And let’s take a backdrop of kinda like, Bond Math 1.0 or you know, Portfolio Allocation 1.0, in the sense of, bonds selling off in and of itself is not a terrible thing always. What’s kind of jarring in this case, is that bonds are usually seen as a hedge against risky assets ’cause they’re the world’s safe haven security. If you’re worried about equity markets selling off, which we’ve seen a lot since the April 2 tariff announcement details from President Trump, usually you’ll go to something, not just cash, but the safety of US Treasuries. So their prices will go up, yields will go down, makes you feel good, that you’re least diversified and you’re in a sense, hedged against some of the risk. What’s been jarring in the last couple days is we have still had mostly problems with stocks: stock prices going down, people are concerned, uncertainty about the tariff policy, et cetera, and how it may affect the economy. But bond yields started to rise, which that is— like a few people who are long termers or said to me, this is bizarre. You know, it doesn’t make sense. It’s counter-trend. Oh, what’s going on? My bonds are supposed to be doing well now when stocks are going down. So that, I would say is the biggest backdrop that this is concerning. And also that we’ve kind of lived through this episode kind of thing before. In March 2020, during the worst of the pandemic, we had some periods where again, it seemed like something’s broken. Treasury yields are going up, bond prices are going down when stocks are going down. So I would say that’s a big backdrop to why people are alarmed. 

Saleha Mohsin: So we’ve seen Treasury Secretary Scott Bessent downplay what’s going on in Treasuries right now. Is that messaging that we heard from him enough to assuage people’s fears?

McCormick: McCormick: I think some people feel like, like one investor said to me, like, I appreciate his optimism, but it’s not helping. I think overall, it’s not just to Scott Bessent, it’s the whole administration that they feel like we need clarity at least, because we still feel there’s a lot of uncertainty of the path forward.

Holder: Liz, you had mentioned that US Treasuries are often seen as the safe haven for investors during an economic crisis or periods of volatility. If American Treasuries and the US dollar are not currently seen as the safe investment, where might investors turn? How could this selloff undermine the US’ position in the global economic order? 

McCormick: Number one, the dollar was kind of a safe haven. But as we know, the dollar has weakened as well. So some people thought, oh, that would be the way to go. You know, just bet on a strong dollar that hasn’t panned out either. But what’s important, too — and a backdrop that I didn’t mention earlier — is there are many who feel like maybe now I have some alternatives to buying Treasuries. In Europe they’re going to do, you know, a large swath of more issuance of debt. So the more German Bunds to be purchased, people feel they have alternatives. The Bank of Japan, it is after, as we know, many, many years of having ultra-low rates, slowly moving them up. o people feel like our yields are still higher, but there may be attractive yields abroad. There may be more debt to buy, sovereign debt abroad. So there’s a bit of like, maybe there’s some alternatives, especially if you’re feeling like there’s just so much volatility.  It’s not just the actual level of Treasury yields and the price. It’s the extreme volatility that’s very hard for people to digest. I was looking on our Bloomberg terminals that the 10-year yield has gone up like over 60 basis points, you know, from the intraday lows to highs in the last couple days. I mean, that’s just a very massive move in again, what’s supposed to be the safe haven. Of course, 10 years is a lot of maturity, so it never just stays still too long, like the very, very front end or you know, overnight rates. But I think that’s the problem. So I think, yeah, there’s some feeling that maybe there’s alternatives. People say to me the whisper talk that, um, may be part of the retaliation from China is that they will be selling some of their Treasuries, or they will be, let’s say, at the least, less willing to buy Treasuries, you know, add to their holdings of Treasuries. That’s concerning to people in the market. So I think it’s just this, all these things together have made people feel like, you know, maybe Treasuries aren’t my favorite safe haven for now.

Mohsin: One key component of Bessent’s economic strategy has been to target the 10-year yield as a way to bring down borrowing costs for consumers. How will the surging yields now undermine that goal?

McCormick: Let’s just talk to the lay person. I don’t like to give my age, but say my oldest daughter is in her late twenties. She’s engaged, they’re gonna buy a house and she keeps saying to me, mom, mortgage rates were supposed to go down. What’s happening? You know, and that’s before we had this massive move and they hadn’t gone down too much, even with the federal reserve cutting rates. So now if this sharp move and Treasury yields keep going higher, that can filter into settings of mortgage rates and different things like that. And also people have to borrow money for different things, projects to the house. So the Fed is the base for all kinds of base rates, but higher long-term rates can filter into the economy. It can also tighten financial conditions overall, it just makes it more difficult to do what you want it to do if you don’t have cash on hand. So I think, you know, and that’s why Scott Bessent smartly has said, if we lower 10-year yields, it will support the economy writ large. And of course then the reverse is true, too. If they keep going higher, that’s a negative for the economy.

Holder: Coming up, more of my conversation with Saleha Mohsin and Liz Capo McCormick. We talk about what the federal government can be doing to stabilize markets from the Federal Reserve to the executive branch.

Holder: Let’s talk about the Federal Reserve. They have this dual mandate. They’ve got to keep inflation in check and keep unemployment down. How are they navigating this moment? 

McCormick: Yeah, I mean the Fed, you know, has their dual mandates and they have what they call their blunt tool interest rates, you know, lowering them or raising them. But they do have an arsenal, which they’ve been very astute at using in the past, during different crises and things. Other tools like they can buy bonds called quantitative easing, right, QE. That can support the market by kind of taking some of these bonds out, helping to bring yields down. They also have special kind of programs where they can support the banking system. They can support different areas of the economy, kind of like when we had the issues with the regional banking crisis. There are even some ways that they can ease regulation temporarily that would make it more attractive for these banks and dealers to hold Treasuries, which we feel like the market’s getting overwhelmed a little. That helped during the pandemic crisis. So they have a lot of tools. I think for now, given that both mandates. Like Chairman Powell has said, we’re kind of in a good place. You know, they noted that tariffs were higher than they expected, which economists say will lower growth, but also raise inflation. So the Fed is kind of closely monitoring both of its mandates. So I don’t think they wanna do anything on that front. They’re not there yet. Exactly. And people in the market aren’t screaming Fed jump in today. But I think it’s assuring to the market to know that the Fed has these tools, they’ve done it in the past. If things start not functioning well, the market does kind of look to the Fed to kinda step in.

Mohsin: It sounds like the Federal Reserve, or at least some key officials are signaling that maybe it’s worth waiting before jumping in, right? The economy going into this was in a strong position, although inflation was still a concern. Is that the consensus amongst the investor community that you speak to?

McCormick: What’s interesting is I always say, traders do what they do. You have the kind of, let’s say money market traders, derivative traders who have leaned in to aggressively price in that the Fed will cut rates maybe four times this year. So a whole percentage point. So, I don’t know. I kind of think these traders have a way of getting over their skis a little. ‘Cause Chairman Powell — an investor, said to me, kind of threw cold water on that — Friday to your point of saying, we’re okay to wait. It’s going to be interesting what moves first, whether things get worse. And the Fed sounds like they may do something on rates, whether they’re worried about growth, et cetera, or if the market kind of dials that back a little. Some of these traders are pricing in like, hey, the Fed, eventually this economy’s going to really crater. They’ll have to come in. Let’s just talk about that side of the mandate. But inflation, as we said, is also a concern. So I think the market realizes, ugh, they’re in a sticky spot.

Mohsin: Liz, you and I’ve covered various parts of the Treasury Department for a while now together, and you longer than I have. One key thing to remember is that a Treasury secretary in the moment of crisis often has to take big, bold action. Former Treasury Secretary Hank Paulson from the George W. Bush administration famously knelt before Nancy Pelosi inside the White House for help to get relief passed during the 2008 financial crisis. And we’ve seen similar actions from other secretaries subsequently doing things to ultimately try to calm investors. Is this Bessent’s moment? Can he do the same now?

McCormick: You know, I did speak to an investor who kind of brought up some of that precedent to me as well, and said, they’re really hoping that Scott Bessent will push hard, whether we know it, it’s in the public sphere or not. They’re hoping Scott Bessent is making clear to President Trump that, you know, especially the Treasury market, if things keep unraveling that there’s risks that, you know, things seize up and it bleeds into the economy. So I think that’s what people say to me, like, okay, for now, he’s not saying that much that’s giving us calm.But we hope in, you know, in the room what we don’t hear, that he’s really making clear how important all this is. I mean, it’s the kind of thing that my mother, who’s old will say, ‘what is going on? I saw on PBS news that the 10-year yield is at 5%.’ You know, it starts to get the regular person worried and that’s not good for consumer confidence and those types of things.

Holder: Well, thank you so much, Liz. We really appreciate you making sense of this crazy moment for markets.

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