Bond Market Reacts to Tariff Reversal and Policy Uncertainty
U.S. Treasury yields surged this week after the U.S. Court of International Trade overturned major tariffs imposed under former President Donald Trump, shaking investor confidence and sparking a bond market sell-off.
The 30-year Treasury yield climbed past 5% for the first time in months, while the 10-year yield rose to 4.50%, gaining 10 basis points over two sessions.
The court ruled that Trump’s broad tariffs violated constitutional boundaries, declaring that only Congress holds the authority to regulate international trade. The ruling invalidates general tariffs applied to a wide range of goods but leaves sector-specific duties—such as those on steel, autos, and aluminum—intact.
The Biden administration signaled its intent to appeal, setting the stage for continued legal and economic uncertainty.
U.S.–China Tensions Add Fuel to Market Volatility
The legal decision arrives amid renewed U.S.–China friction in sensitive areas including semiconductors, student visas, and high-tech exports:
- U.S. chipmakers have been ordered to halt advanced tech sales to Chinese firms.
- Export licenses for jet-engine and semiconductor design software have been frozen.
- Chinese student visas are now facing new scrutiny, part of a broader push to decouple from China across educational and research domains.
Geopolitical pressure is weighing on markets as fears mount over a more entrenched economic split between the world’s two largest economies.
Dollar Strengthens, Risk Assets Pause
The U.S. Dollar Index (DXY) rallied to 100 from 98, reflecting global demand for dollar-denominated assets amid rising yields and heightened risk aversion.
Gold and Bitcoin are trading flat, indicating that investors are cautious and waiting for the next macro trigger.
Analysts at the Kobeissi Letter noted that “the bond market remains highly sensitive to legal and geopolitical surprises,” especially given the fragile backdrop of rising inflation, tightening credit conditions, and a looming election cycle.
What’s Next for Investors
With the administration likely to challenge the ruling and escalating tensions with China continuing to dominate headlines, volatility in the bond and currency markets is likely to persist.
The yield surge could pressure equity markets and force the Fed to reassess its rate stance if credit conditions tighten further.