Trump's tariffs have shattered the "safe haven myth" of US debt. Summary: Wall Street considers it a "risky asset," with China and Japan being the culprits of dumping.

Trump's reciprocal tariffs triggered the discussion of the rupture of the "hedging function of U.S. bonds" and caused controversy among major Wall Street experts, and this article tries to sort out the essence of the discussion, as well as the possibility of dumping in the two largest U.S. bond holders of China and Japan, to clarify the truth of the market. (Synopsis: U.S. debt blood collapses!) Yields soar to a new 3-year high, and the United States is desperate "stocks and bonds have fallen three times") (Background supplement: Who pushed tariffs behind Trump: economist Navarro, "belligerent corner in the middle") U.S. Treasuries (U.S. Treasuries) has long been touted by global investors as a reliable haven for funds in turbulent times, and was a very reliable "risk-free" asset in the 2008 financial tsunami and 911 terrorist attacks, but its safe-haven function is being questioned more recently in the context of President Donald Trump's sweeping reciprocal tariffs. Traditionally, when risk assets such as the stock market are sold off, funds will pour into U.S. bonds to seek safe haven, pushing up bond prices and lowering yields, but in recent days, after Trump has imposed high tariffs, the yield of long-term U.S. Treasury bonds (such as 10-year and 30-year) has not only not fallen, but has soared in tandem with risky assets such as stocks and cryptocurrencies (meaning bond prices have fallen). Former U.S. Treasury Secretary Lawrence Summers recently criticized U.S. Treasuries for trading like bonds in an emerging market country, suggesting that the risk premium is increasing significantly. Funds fled the United States across the board The data revealed the sharp turmoil in the market, and on Thursday (April 10), U.S. stocks plunged after a historic rally the day before, giving up almost half of their gains, and the yield on 30-year U.S. Treasuries, considered the anchor of global asset pricing, soared a staggering 13 basis points to a high of 4.87%. The dollar was also hit hard, falling the most in a decade against the euro and the Swiss franc, and the widespread sell-off in the stock market, bond and currency markets continued until Friday (April 11). This situation of "three kills of stocks and bonds" has exacerbated the market's concern that foreign investors may be exiting US assets on a large scale, which is closely related to the loss of safe-haven function of US bonds. Who shakes the hegemony of the dollar? Why this problem? Public opinion and Wall Street analysts believe that the reasons for the risk aversion failure of US Treasury bonds are complicated, but the Trump administration's reciprocal tariff "wolf" effect is to blame, including a punitive tariff of up to 145% on all products from China, which is the most radical protectionist trade barrier in the United States for more than a century, which is completely different from the United States' historical attitude of advocating a free economy and openness, which has led to a crisis of confidence in US assets and the withdrawal of funds from the US Treasury market. Driving long-day yields to their biggest one-day increase since the early days of the pandemic in 2020. Years of fiscal deficits and massive borrowing have pushed total U.S. Treasuries to record highs, and concerns about the U.S. government's ability to service and the long-term value of the dollar have deepened amid recession. Jim Grant, founder of Grant's Interest Rate Observer, has argued that the root cause of America's prosperity lies in "the world's great trust in the ability of the United States to manage fiscal and monetary management and the stability of its political and financial institutions," and he bluntly said that "the world may be reconsidering." It is a red flag for a country that depends on importing countries and global capital to finance its huge deficits. Wall Street Debate: Who Sells U.S. Bonds in China and Japan? Wall Street is debating whether it has anything to do with China, the biggest competitor in the United States, and many community analysts believe that Beijing may be selling off its holdings of U.S. Treasuries as retaliation for extreme U.S. tariffs. Ataru Okumura, a senior interest rate strategist at SMBC Nikko Securities in Tokyo, also mentioned that China may be selling government bonds in retaliation, and China may be trying to show its determination to raise its negotiating leverage with the United States and cause turmoil in global financial markets. The analyst team at Goldman Sachs Group Inc. also speculated that the sale of dollar assets could be one of China's retaliatory options, while Ed Yardeni, the founder of Yardeni Research, said bond investors may begin to worry that Beijing and other global holders will start selling U.S. debt. Many arguments believe that Japan, the country with the largest holdings of U.S. bonds, is the main culprit in selling U.S. bonds, but earlier Japanese Finance Minister Katsunobu Kato had emphasized that Japan's management of U.S. Treasury bond holdings is a strategic reserve reserved for future intervention in the exchange rate, and is a monetary tool reserved by the Bank of Japan for reserves, not a tool for interfering in trade and negotiations, and directly denied this accusation. China is the second-largest foreign holder of U.S. Treasuries, after Japan, and its direct holdings of U.S. Treasuries have steadily declined to its lowest level since at least 2011, at about $700 billion, according to official data released by the U.S. Treasury Department in January. But the data does not show a more complicated picture, and the fact that funds such as China may indirectly hold large amounts of U.S. debt through custodian accounts in Belgium, Luxembourg and other countries, where private fund holdings have gradually increased in recent years, making it difficult to track the true size of China's holdings. Because of the high degree of secrecy of official Chinese trading data, the lag in the release of relevant data, and the artificial corrections identified by the market, no one can confirm for sure whether China has indeed carried out a large-scale sell-off in the near future. The People's Bank of China and the State Administration of Foreign Exchange also did not immediately respond to requests for comment. Opponents of the China sell-off theory But many market participants remain skeptical of the "China sell-off", with Prashant Newnaha, a strategist at TD Securities, pointing out that short-term Treasury yields should come under more pressure if China sells on a large scale and its position structure may be skewed towards the short to medium term. But the reality is that the current sell-off has focused on the long end of the curve (the 30-year yield rose 48 basis points this week, well above the 5-year 36 basis points), which is more like a broad-based asset reallocation by broad investors than a targeted action by China. Jay Barry, an analyst at JPMorgan Chase & Co., also said that every $300 billion reduction in foreign official holdings would push the 5-year yield up by about 33 basis points. Given China's official holdings of $700 billion, the scale of the sell-off would need to be huge for such market volatility, which many observers see as unlikely, as it would also damage the value of China's own foreign exchange reserves. In addition to geopolitical and general economic factors, technical manipulation in the market may also be one of the main factors that are also considered to be one of the main reasons for the collapse of US bonds, US Treasury Secretary Scott Bessent (Scott Bessent) believes that the source of market volatility is not due to systemic risk, but the bond market is undergoing an "uncomfortable but theoretically reasonable deleveraging process". In the past, hedge funds around the world have popularized "basis trade", which is a kind of use of the small spread between spot Treasury bonds and Treasury futures.