The trading session on Monday is likely to be remembered as one of the most turbulent since the COVID-induced market crash in March 2020, with global markets impacted significantly as the U.S. and China clash over tariffs, showing no signs of compromise from either side.
As stock markets wavered, the fluctuations affected all asset classes. For instance, Bitcoin (BTC) experienced intraday swings of up to 10%. The primary concern, however, revolves around the yield on the U.S. 10-year Treasury note—a figure often referred to as the risk-free interest rate, which the previous administration sought to lower while looking to refinance trillions in national debt.
The yield fell from 4.8% late last week to 3.9% after trade tensions escalated due to the introduction of sweeping tariffs by the Trump administration, which increased demand for Treasury notes.
Typically, when investors shift towards a more conservative approach, bond prices increase, pushing yields down. However, as risk aversion surged on Monday, yields unexpectedly rose, reaching 4.22%.
This trend was not limited to the U.S. The U.K. witnessed its most significant rise in yields since the pension crisis era of October 2022, while yields increased worldwide, indicating rising instability and waning confidence in sovereign debts and currencies.
The head of commodity strategy at a financial institution highlighted the scale of the movement in long-dated Treasuries as indicative of potential underlying issues.
He noted, “U.S. Treasuries faced a substantial sell-off yesterday, with long yields climbing the most since the pandemic turmoil—a possible indication of substantial holders, like foreign investors, selling off and bringing their assets back home.” He elaborated that the 30-year U.S. Treasury yield soared from around 4.30% to as high as 4.65% throughout the day, while the 10-year yield rebounded to 4.17% from a low of nearly 3.85% the previous day.
While the focus was on foreign selling, particularly from China—which reportedly sold $50 billion in Treasuries—another analyst questioned this narrative, suggesting that the movements indicated a domestic sell-off instead, driven more by inflation concerns.
Despite ongoing speculation about China’s divestments, unverified reports continue to circulate. As of January 2025, China still held around $761 billion in U.S. government debt, remaining the largest foreign holder after Japan.
The theory that the surges in the 10-year and 30-year yields stem from China’s activity seems unsubstantiated, as a significant portion of Chinese investments in dollar-denominated assets are in agency bonds and short-term instruments, rather than longer-duration Treasury notes.
There’s a common belief that China could leverage its U.S. Treasury holdings in the trade dispute, but this isn’t necessarily accurate.
An economist has consistently argued that China’s Treasury holdings are closely linked to its current account surplus, emphasizing that it lacks the ability to weaponize these assets against the U.S.
It’s important to note that China has been gradually reducing its Treasury investments since 2013, aligning with the peak of its current account surplus during the 2008 financial crisis.