U.S. long-term Government Bonds rates surged. Since bond rates and prices move in opposite directions, this means that the prices of U.S. long-term bonds collapsed. Analysts suggest that this is a result of concerns over the Trump administration's aggressive tariff policy and the sale of U.S. Government Bonds by China.
According to the financial investment industry on the 9th, the yield on U.S. Government Bonds for 30 years was 4.923% as of 2:10 p.m. Korean time. It even soared to 5.023% during trading.
According to Mirae Asset Securities, the yield on U.S. Government Bonds for 30 years rose by 58 basis points (1 basis point = 0.01 percentage points) on a weekly basis. This is the largest weekly increase in 44 years. It has jumped the most since the end of September 1981 when it was 86 basis points and mid-December 1981 when it was 66 basis points. In 1981, it was a time when Paul Volcker, the chair of the Federal Reserve System (Fed), raised the benchmark interest rate to as much as 20% to control inflation. The current situation is different as the market anticipates a rate cut from the Fed.
Kim Seok-hwan, a researcher at Mirae Asset Securities, cited the aggressive tariff policy of the United States as the reason for the surge in U.S. Government Bonds for 30 years. The Trump administration imposed universal and reciprocal tariffs starting at 1 p.m. Korean time on that day. The tariff on China reached a total of 104%. The average tariff rate on imported goods in the U.S. is at its highest level since the implementation of the Smoot-Hawley Tariff Act of 1930.
High tariffs are likely to rekindle inflation. Additionally, an economic contraction could further worsen the U.S. fiscal deficit. Kim noted, "President Trump aims to improve U.S. fiscal soundness through tariffs, but the Congressional Budget Office (CBO) warned that if tariffs shrink the economy, it could add more burden to the national finances and deepen issues with tax revenue and fiscal imbalance."
There are also analyses suggesting that China's selling of U.S. Government Bonds is a response to the tariff imposition by the Trump administration. Yoon Ye-sam, a researcher at MERITZ Securities, said, "Given the current sharp rise in U.S. Government Bonds yields in the Asian market and the steep decline of the dollar, the possibility of foreign entities like China selling U.S. Government Bonds appears to be increasing."
China's holdings of U.S. Government Bonds currently stand at around $760 billion (approximately 1,130 trillion won). China's selling of Government Bonds is undermining investor sentiment, and voices are growing concerned about a vicious cycle that could shake both U.S. Government Bonds yields and the stock market, driven by foreign investors exhibiting "panic selling."
There are analyses suggesting that the results of the U.S. Government Bonds auction could be a turning point. The auction for 10-year bonds is scheduled for tonight in Korean time, and the auction for 30-year bonds is set for the night of the 10th.