Rates: U.S. Treasuries Have Become A 'Pain Trade'

2025-04-15 09:20:00 ET

Summary

• US Treasury bond prices have been bullied lower and yields have shot higher - not what would typically be expected on the build of a material recession risk.
• Rarely, if ever, have we had Treasuries being sold amid a massive fire sale of risk assets. The fact that yields have been forced higher heightens the tariff pain, as there's nowhere to hide.
• We also note that the US 10yr swap spread has shot out to 60bp. That's a material cheapening in Treasuries versus the SOFR risk-free rate curve. This is quite unusual during a classic flight to safety, as in that case Treasuries would richen in a relative sense.
• So far, the system is functioning. Liquidity is down but tolerable. Likely, things would have to worsen before the Fed comes in.

By Padhraic Garvey, CFA

US Treasury yields have marched higher again - what's going on?

The impact of tariffs was the discount for a recession and more rate cuts, typically deemed a good rationale to buy bonds. It still is, and could be in months to come. But for now, we've gone the other way. Treasury bond prices have been bullied lower in the past few days, and yields have shot higher - not what would typically be expected on the build of a material recession risk....

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