Treasuries, dollar fall as trade war drives recession fears; US stocks up
By Caroline Valetkevitch, Amanda Cooper
NEW YORK/LONDON -The latest escalation in the trade war between the United States and China rattled global markets again on Wednesday, with Treasuries and the U.S. dollar falling in a selloff of some U.S. assets.
U.S. stocks edged higher, however, led by gains in technology shares as investors weighed whether recent sharp selling may have been overdone, although trading remained choppy.
U.S. President Donald Trump’s 104% tariffs on China came into effect on Wednesday, prompting a swift retaliation from Beijing in the form of duties of 84% on U.S. imports.
Benchmark 10-year U.S. Treasury note yields jumped to a seven-week high on what appeared to be large liquidations of the debt, with trading volumes overnight totalling more than four times the average. Bond yields move opposite to prices.
An increase in yields during the Asian trading day increased fears that China may be offloading a large portion of its U.S. bond holdings.
Demand for longer-dated debt is set to face a test with a $39 billion sale of 10-year notes on Wednesday afternoon and a $22 billion auction of 30-year bonds on Thursday.
Many investors worry that Trump’s wide-ranging tariffs will be severe enough to trigger a recession and force the Federal Reserve into cutting interest rates.
The push out of Treasuries and the dollar – effectively the backbone of the global financial system – could be symptomatic of a broader loss in investor desire to hold U.S. assets in general and “the end of an era,” according to Deutsche Bank head of foreign exchange research George Saravelos.
“We are witnessing a simultaneous collapse in the price of all U.S. assets including equities, the dollar versus alternative reserve FX and the bond market. We are entering uncharted territory in the global financial system,” he said.
The dollar – often a safe haven in times of turmoil – fell broadly, while investors fled to the Swiss franc and gold.
“This seemingly ‘sell America’ trade is one that’s now dominating the rising recession risk theme that typically would have pushed yields down,” economists at ING said.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.39% to 102.37, with the euro up 0.68% at $1.1031. Against the Japanese yen, the dollar weakened 0.77% to 145.15.
Against the Swiss franc, the dollar weakened 0.66% to 0.842. Spot gold rose 3.53% to $3,088.80 an ounce.
The violent selloff in Treasuries was reminiscent for some investors of the dash-for-cash at the onset of the COVID-19 pandemic in March 2020, and it reignited fears of fragility in the world’s biggest bond market.
The yield on benchmark U.S. 10-year notes rose 19.2 basis points to 4.45%, from 4.26% late on Tuesday.
U.S. stocks were up slightly at midday New York trading.
The Cboe Volatility index, Wall Street’s fear gauge, was down. This week, it had reached its highest level since August.
The upcoming U.S. quarterly earnings season will offer more insights into the health of corporate America, with U.S. banks, including JPMorgan Chase, due to report first-quarter results on Friday.
The Dow Jones Industrial Average rose 167.93 points, or 0.45%, to 37,813.52, the S&P 500 rose 33.11 points, or 0.67%, to 5,015.97 and the Nasdaq Composite rose 217.21 points, or 1.43%, to 15,486.85.
As of Tuesday’s close, S&P 500 companies had lost $5.8 trillion in stock market value since Trump’s tariff announcement late last Wednesday, the deepest four-day loss since the benchmark was created in the 1950s, according to LSEG data.
MSCI’s gauge of stocks across the globe fell 1.97 points, or 0.32%, to 740.61. The pan-European STOXX 600 index fell 3.5%.
Analysts at JPMorgan believed the rapid escalation in U.S. tariffs on China would be sufficiently disruptive to push the global economy into recession.
“Given the import bill from China, the China tariff alone amounts to a whopping $400 billion tax hike on U.S. households and businesses,” they said in a note to clients. “The currency is likely to be a release valve for China policymakers.”
Oil prices tumbled as concern over the outlook for global energy demand outweighed any nervousness on the geopolitical front.
U.S. crude fell 3.84% to $57.29 a barrel and Brent fell to $60.50 per barrel, down 3.68% on the day.
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