Investors Flee US Government Bonds amid Waning Confidence in American Stability

US Treasury bonds, long considered a pillar of global financial stability, are being sold off by investors, triggering alarm over America’s perceived economic and political reliability.

This shift in sentiment threatens to undermine the traditional role of government bonds as a refuge during times of market turmoil.

“The fear is the US is losing its standing as the safe haven,” said George Cipolloni, a fund manager at Penn Mutual Asset Management.

“Our bond market is the biggest and most stable in the world, but when you add instability, bad things can happen,” he said.

The sell-off is also a potential blow to US President Donald Trump, who hoped his decision to pause new tariffs earlier this week would calm financial markets.

While volatility in the stock market has dominated headlines, experts warn the more serious issue may lie in the bond market, where turmoil is less visible but potentially more damaging.

US Treasury bonds function as IOUs from the federal government and are a key mechanism for funding its operations.

Investors typically flock to Treasurys during periods of uncertainty, yet the current trend shows them walking away, despite the appeal of higher yields.

The benchmark 10-year Treasury yield rose from 4.01% a week ago to as high as 4.58% on Friday, before settling near 4.50% — a significant move in a market that usually sees shifts in hundredths of a percentage point.

The impact of rising yields is already being felt by consumers through higher interest rates on mortgages, car loans, and other borrowing.

“As yields move higher, you’ll see your borrowing rates move higher, too,” said Brian Rehling, head of fixed income strategy at Wells Fargo Investment Institute.

“And every corporation uses these funding markets. If they get more expensive, they’re going to have to pass along those costs to customers or cut costs by cutting jobs,” he added.

The precise cause of the sell-off remains unclear, but the effects have been unsettling for Wall Street.

Under normal conditions, bonds rise in value when stocks decline, offering a cushion for diversified investors.

“This is Econ 101,” said Jack McIntyre, a portfolio manager at Brandywine Global.

Speaking about the recent market behavior, he said, “It’s left people scratching their heads.”

Friday’s unexpected decline in consumer sentiment, including growing fears of higher inflation, was one of the immediate triggers behind the spike in yields.

But analysts say the deeper concern is about America’s reliability as an economic partner, particularly amid Trump’s unpredictable tariff policies.

“When the issue is a broader loss of confidence in the United States, even a much fuller retreat on trade might not work” to bring yields down, wrote Sarah Bianchi and colleagues at Evercore ISI.

“We’re not sure any of the tools remaining in Trump’s toolkit will be sufficient to fully staunch the bleeding,” they added.

US Treasury Secretary Scott Bessent dismissed the market turbulence as a routine correction driven by overleveraged investors.

“I think that it is an uncomfortable but normal deleveraging that's going on,” Bessent told Fox News on Thursday.

He said such events “happen every couple of years.”

President Trump addressed the issue Friday night while speaking to reporters aboard Air Force One.

“The bond market’s going good. It had a little moment, but I solved that problem very quickly. I’m very good at this,” he said.

Trump acknowledged the bond market played a role in his decision to delay tariffs, saying investors “were getting a little queasy.”

If so, the episode would echo past instances where the bond market exerted major political influence — such as the downfall of former U.K. Prime Minister Liz Truss in 2022 after a similar market backlash.

James Carville, a former adviser to President Bill Clinton, once famously said he wanted to be reincarnated as the bond market because of its immense power.

Investors have long shown an instinctive flight to US debt during crises — including the 2009 financial collapse, despite its origins in the American housing market.

Back then, the safety and liquidity of Treasurys attracted global investors, pushing yields down and helping to lower borrowing costs across the board.

This time, however, the usual dynamic is not playing out.

Analysts have suggested several potential reasons for the sell-off beyond declining trust in the US

Some speculate that China, a major holder of US Treasurys, may be selling its holdings in retaliation — though this would also damage its own economy by strengthening the yuan and weakening exports.

Another theory points to hedge funds engaging in a strategy called the “basis trade,” which involves heavy borrowing against US debt.

As losses mount, these funds may be forced to sell Treasurys to repay lenders.

“They are selling Treasurys and that is pushing up yields — that’s part of it,” said Mike Arone, chief investment strategist at State Street Global Advisors.

“But the other part is that US has become a less reliable global partner,” he said.