Cover Story: Sell-Off in Treasuries Threatens U.S. as Safe Haven

U.S. Treasuries, long regarded as the ultimate safe haven, experienced unprecedented pressure in April. Bond yields spiked to multi-decade highs, with the 10-year yield jumping 56 basis points to 4.53%—the largest weekly increase since 2001—and the 30-year yield rising 44 basis points to 4.97%, the largest weekly gain since 1982. This aggressive bond selloff signaled deeper market unease, producing global repercussions, raising refinancing costs, and exposing vulnerabilities in America’s fiscal position. Notably, this turbulence was accompanied by a weakening dollar, a combination usually seen during emerging-market crises, and led some global investors to question the fundamental safety of Treasuries and dollar assets [para. 1][para. 2][para. 4].

Prominent voices, like former Treasury Secretaries Janet Yellen and Larry Summers, highlighted the unusual concurrence of rising Treasury yields and falling dollar value, drawing comparisons to past sovereign crises. The market turmoil also influenced political decisions, such as President Trump’s abrupt reversal on reciprocal tariffs—widely interpreted as a reaction to Treasury market stress. The U.S. faces a ballooning debt burden, with federal debt at $36.22 trillion and annual interest payments topping $1 trillion, or about 20% of federal revenue. An estimated $10 trillion in Treasuries will mature this year, requiring refinancing at higher rates. Each 1% hike in borrowing costs adds $187 billion to federal interest expenses annually [para. 3][para. 4][para. 5][para. 6].

While reassuring statements from Federal Reserve officials brought temporary respite, further shocks—such as criticism of the Fed and threats to defund elite universities—prompted continued selling, with even institutional investors participating. As of April 25, 10-year and 30-year yields remained elevated (4.29% and 4.75%, respectively), while the dollar’s recovery was modest and gold prices climbed, indicating cracks in the perceived safety of U.S. assets [para. 7][para. 8].

Despite these challenges, some experts urge caution against abandoning Treasuries. Figures like Standard Chartered’s Eric Robertsen and Yale’s Stephen Roach argue that Treasuries, offering yields near 5%, remain the most attractive and liquid government bonds globally—especially in a potential recession environment. However, they stress that the recent selloff is most concerning for its velocity, not just its magnitude, with the rapid ascent in yields viewed as a harbinger of deeper problems [para. 9][para. 10][para. 11][para. 12].

The causes of the selloff are complex. A major factor was deleveraging among hedge funds engaged in so-called “basis trades,” which totaled between $800 billion and $1 trillion. When volatility spiked, forced liquidations exacerbated market declines. The ownership structure has shifted, with foreign holdings of Treasuries falling from 50% in 2008 to under 25% today, and U.S. mutual funds and individual investors increasing their share. Contrary to popular rumors, there’s little evidence of large-scale foreign selling—official holdings by Japan, China, and the UK remain stable [para. 22][para. 23][para. 24][para. 25][para. 26].

The fiscal outlook remains dire. U.S. federal deficits persist at over $1 trillion annually, driven by high interest costs and spending outpacing revenue. The Congressional Budget Office predicts the 2025 deficit will again exceed $2 trillion. Fiscal policies, including tax cuts and increased spending, risk pushing the deficit-to-GDP ratio up to 8–10%. A sustained increase in yields to 5–6% could threaten government financing and economic stability [para. 39][para. 40][para. 41][para. 42][para. 44][para. 45][para. 47][para. 48].

Treasuries’ safe-haven status is being questioned, with major investors diversifying into non-U.S. bonds and more non-dollar currency use in trade. Proposed policies like the “Mar-a-Lago Agreement”—which would discourage foreign Treasury holdings—raise additional risks. Meanwhile, the dollar has weakened sharply, and its dominant reserve status is under incremental pressure, though most experts expect any erosion to occur gradually [para. 57][para. 58][para. 59][para. 60][para. 61][para. 63][para. 70][para. 72][para. 73][para. 74][para. 75].

In summary, the U.S. Treasury market experienced an historic rout amid fiscal, political, and market pressures. While Treasuries still anchor the global system, the speed of this shift and growing doubts among investors have highlighted mounting stress on the foundations of America’s financial dominance [para. 1][para. 2][para. 3][para. 4][para. 5][para. 6][para. 7][para. 8][para. 39][para. 40][para. 41][para. 42][para. 44][para. 45].