US Bonds Buckle As Stocks Pare Drop Amid Trade Chaos: Markets Wrap
A fear gauge for US investment-grade credit jumped to its highest since May 2023. Gold rose alongside the yen and the Swiss franc.
(Image Source: Bloomberg)
The start of another chaotic trading day on Wall Street saw stocks paring most of an earlier selloff as bonds tumbled, with China’s retaliation to US tariffs indicating no relief to a widening trade war.
Following big losses in early US trading, the S&P 500 was little changed, averting for now the threshold of a bear market. The exodus from longer-dated Treasuries accelerated, with 30-year yields briefly topping 5%. A fear gauge for US investment-grade credit jumped to its highest since May 2023. Gold rose alongside the yen and the Swiss franc.
“We’re well into an escalation phase in the trade war and investors have just nothing to hold onto at the moment,” said Alexandre Baradez, chief market analyst at IG Markets Ltd. “What’s clear now is that the US bond market is no longer a safe haven for investors, but on the contrary is piling pressure on stock markets.”
Treasury Secretary Scott Bessent played down the moves in Treasuries, describing them as “deleveraging convulsions” that were “uncomfortable but normal.”
Drugmaker shares fell after President Donald Trump said the US was planning to announce “a major tariff on pharmaceuticals” soon. Pfizer Inc., Eli Lilly & Co. and Merck & Co. slid more than 3% in US premarket trading. Meanwhile, Delta Air Lines Inc. withdrew its full-year financial guidance, a stark sign of the turmoil rippling across corporate America.
The worsening trade conflict — with Trump increasing levies on China to 104% — has prompted economists at JPMorgan Chase & Co. and Goldman Sachs Group Inc. to raise the probability of a US recession. That would complicate the Federal Reserve’s policy response if it has to contend with an inflation spike brought on by the tariffs.
Investors were gripped by concerns that something may break in the financial plumbing as volatility and stress build across markets. Ray Dalio, the billionaire founder of Bridgewater Associates, warned about a “once-in-a-lifetime” breakdown occurring in monetary, political and geopolitical orders.
“We’re reaching a new stage in the selloff with now serious concerns that the high volatility could trigger market accidents and possibly something systemic,” said Alexandre Hezez, chief investment officer at Group Richelieu in Paris. “If the Fed is forced to intervene and cut interest rates despite Trump’s inflationary policies, then 10-year yields will jump even further.”
