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U.S. Treasury bonds sold off Wednesday as a global trade war escalated, with the Trump administration’s harshest tariffs yet drawing swift retaliation from China and the European Union.
The 10-year U.S. Treasury bond, typically seen as a safe haven when markets are unsettled, rose sharply to more than 4.5% before retreating somewhat. Yields move inversely to prices, meaning investors are quickly selling U.S. bonds.
If higher yields on Treasury bonds persist could push up, rates on could rise for consumer and business loans, too. Mortgages could become less affordable for home buyers, possibly hurting the housing market.
Sophisticated investors probably sold bonds to raise cash in a time of market volatility, said Thomas Urano, managing partner at Austin-based Sage Advisory, Rising yields are probably temporary, he said, but the trade war and Federal Reserve’s response to it will determine the long-term path of interest rates.
“If rates do continue to climb, however, the most direct impact on the consumer is going to be higher-interest expense on car loans, on mortgages,” Urano said.
The Trump administration’s tariffs on 86 countries took effect after midnight, with duties on Chinese goods raised to 104%. China quickly responded with an 84% duty on all U.S. goods and has said it won’t back down. European Union member states voted to approve the retaliatory tariffs on $23 billion in goods in response to Trump’s 25% tariffs on imported steel and aluminum.
Treasury Secretary Scott Bessent on Wednesday characterized China as the “biggest offender” in the global trading system and compared its economy to “the broom carrying the buckets of water” in Disney’s Fantasia. “It never stops,” he said, speaking to the American Bankers Association in Washington. “They just keep producing and producing, and dumping and dumping.”
Canada’s tariffs of 25% on U.S. autos took effect Wednesday, and the E.U. issued tariffs of its own with 25% duties on some U.S. products. Ahead of that announcement, European markets sold off overnight, with London’s FTSE 100, France’s CAC index and Germany’s DAX each down more than 3%.
Leading U.S. stock market indexes rose slightly in an hour of choppy trading following Wednesday’s opening bell. The widely-followed S&P 500 gained 0.4% by 10:30 a.m., while the more narrow Dow Jones Industrial Average rose 0.1%. The tech-heavy Nasdaq composite index gained nearly 1.4%.
Speaking to bank executives later on Wednesday morning, Bessent acknowledged “a little uncertainty” in the economy” but said it was nonetheless “in pretty good shape.”
“In general, the companies I’ve spoken to … tell me the economy is very solid,” Bessent told the bankers’ group.
But some U.S. companies on Wednesday warned of a cloudy economic picture. Walmart on Wednesday cited tariff risks as a reason for backing away from its previous target for first-quarter profit growth. Delta Air Lines pulled its earnings forecast for the year because of “broad economic uncertainty around global trade.”
He added that he would be taking a lead role as the Trump administration embarks on tariff negotiations with U.S. trading partners. “We have about 70 negotiations lined up,” said Bessent, speaking to the American Bankers Association. “I’m not planning on going anywhere for Easter.”
In Asia, Japan’s Nikkei 225 lost 4%, while South Korea’s KOSPI ended the day 2% lower.
Hong Kong’s Hang Seng Index, which lists many Chinese exporters, fell sharply as trading opened there on Wednesday but recovered to eke out a modest gain of 0.7%.
Crude oil entered a sharp decline, with the West Texas intermediate crude index down almost 6% to about 56 per barrel by 8:30 a.m. Oil prices tend to fall when markets anticipate lower economic activity.
Pharmaceutical giants were the latest to be swept up in the market rout after President Donald Trump hinted at impending tariffs on imported pharmaceuticals. European pharmaceutical companies sold off in response, with companies such as AstraZeneca, Roche and Novo Nordisk losing between 3% and 5% on European markets.
U.S. pharmaceutical companies could see disruption from the tariffs, too, as many of them have moved manufacturing and intellectual property overseas in recent years, which some experts have described as a bid to lower their corporate taxes. Tariffs on European imports, for example, could disrupt that strategy.
U.S. companies Pfizer, Johnson & Johnson and Merck were each down more than 2% shortly after trading began.
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