What started as a bold economic move from Donald Trump has quickly turned into a whirlwind of financial drama.
After much fanfare around his so-called “Liberation Day” tariffs, the U.S. president was forced to hit the brakes and delay most of them by three months.
The unexpected climbdown has stirred up a storm in the markets—and sparked a lot of finger-pointing.
Hedge Funds and Global Jitters Behind the Market Mayhem
While Trump’s decision helped Wall Street breathe a temporary sigh of relief, it didn’t take long for deeper issues to rise to the surface.
Analysts have been sounding the alarm about what’s really rattling investor confidence: hedge funds gambling with high-risk “basis trades,” and fears that China might dump its huge stash of U.S. Treasury bonds.
These trades involve borrowing huge amounts of money to take advantage of tiny price differences in U.S. bond markets. But when the bond market started sliding, hedge funds got caught in a bind.
They had to sell off fast to avoid catastrophic losses—adding even more chaos to an already shaky system.
U.S. Treasury Bond Yields Spike Amid Selloff
The yield on the 10-year U.S. Treasury note jumped to 4.45%, marking the biggest weekly surge since 2001.
That’s a big deal, because these bonds aren’t just an economic barometer—they help finance America’s national debt and influence everything from home loans to credit card rates.
The quick spike signals growing doubt about the health of the U.S. economy, especially with the dollar weakening at the same time.
Investors aren’t just worried about Trump’s trade tactics—they’re questioning the country’s overall financial stability.
China’s Role Looms Large in the Background
Another concern? China. With tensions rising in the ongoing trade war, there’s speculation that Beijing could retaliate by offloading some of its U.S. debt.
If that happens, it could send shockwaves through global markets, making borrowing even more expensive for the U.S.
To make matters worse, China has already responded to Trump’s tariff tactics by upping its own duties—now hitting American goods with up to 84% in tariffs, and possibly more to come.
Central Banks Warned About Leverage Risks
Some experts are calling for tighter controls. A former top official at the Bank of England even warned that central banks, especially in the U.S., aren’t doing enough to crack down on excessive borrowing by hedge funds.
Last year, the Bank of England flagged the exact risk we’re seeing now—saying a major market shock could force funds to rapidly pull back their investments in U.S. bonds.
Looks like that warning might’ve gone unheeded.
Global Markets React with Unease
The ripple effect has been felt worldwide. While the FTSE 100 clawed back some ground in early trading, global stock markets are still under pressure.
Investors have been rushing toward safe-haven assets like gold and the Swiss franc, which just hit a 10-year high against the U.S. dollar.
In Asia, Japan’s Nikkei took a steep 4.3% dive, while South Korean and Taiwanese markets also dipped.
Interestingly, Chinese stocks held their ground better than most—with the Hang Seng actually gaining slightly.
The Bigger Picture: Not Just About Tariffs
Kyle Rodda, a financial analyst at Capital.com, summed it up best: “There’s clearly an exodus from U.S. assets.” This goes beyond trade wars and tariff delays.
It’s about the bigger fear that the U.S. economy may be heading for rougher waters.