Financial encyclopedia

Recently, while the US stock market has slumped sharply, US Treasuries, a traditional safe-haven asset, have not received the expected inflow of funds. Instead, bond prices have dropped and yields have soared. While the market was shocked, it also began to question whether the global risk-aversion logic was undergoing a fundamental transformation.

Is there a crack in the risk-avoidance function?

When the market is volatile, funds should flow into US Treasuries for safety, pushing up bond prices and lowering yields. However, recently, the 10-year US Treasury yield has risen above 4.5%, and the 30-year yield has even broken through 5% at one point, indicating that not only has the market not rushed in, but it may even be withdrawing from the US Treasury market.

There are two major causes behind it

Hedge fund liquidation wave: Some funds conduct basis trading with high leverage. As soon as the market fluctuates, they close out a large number of positions and sell bonds, causing selling pressure.

Sovereign states' potential sale: Market rumors suggest that China may sell up to 50 billion US dollars of US Treasury bonds as a response to the US's tariff hikes. Although it has not been officially confirmed, market sentiment has been clearly under pressure. Japan was also rumored to be involved, but it was immediately denied.

Why did the rise in US Treasury bond yields make Trump change his course?

Rising yields mean higher borrowing costs for the government, putting pressure on the property market, corporate investment and the overall economy. Some analysts believe that it is precisely because of the abnormal fluctuations in the bond market that Trump decided to suspend the imposition of tariffs on over 75 countries and only raise them to 125% against China, in an attempt to stabilize financial confidence.

Confidence is more crucial than interest rates

This incident reflects that in the financial market, apart from price changes, more attention is paid to the underlying flow of confidence. When "safe-haven assets" themselves lose their safe-haven function, funds will be forced to seek new outlets, and the impact may far exceed market expectations.

Us Treasuries have fallen out of favor, and funds are bound to seek safe havens elsewhere. Gold, with its stable characteristics, is expected to take over and become the new focus of risk aversion in the market.