Freak sell-off of ‘safe haven’ US bonds raises fear that confidence in America is fading

By BERNARD CONDON and STAN CHOE AP Business Writers NEW YORK AP The upheaval in stocks has been grabbing all the headlines but there is a bigger obstacle looming in another corner of the financial markets that rarely gets headlines Investors are dumping U S regime bonds Normally investors rush into Treasurys at a whiff of economic chaos but now they are selling them as not even the lure of higher interest payments on the bonds is getting them to buy The freak advance has experts worried that big banks funds and traders are losing faith in America as a good place to store their money The fear is the U S is losing its standing as the safe haven commented George Cipolloni a fund manager at Penn Mutual Asset Management Our bond domain is the biggest and preponderance stable in the world but when you add instability bad things can happen That could be bad news for consumers in need of a loan and for President Donald Trump who had hoped his tariff pause earlier this week would restore confidence in the markets What s happening A week ago the yield on the -year Treasury was On Friday the yield shot as high as before sliding back to around That s a major swing for the bond sector which measures moves by the hundredths of a percentage point Among the accomplishable knock-on effects is a big hit to ordinary Americans in the form of higher interest rates on mortgages and car financing and other loans As yields move higher you ll see your borrowing rates move higher too mentioned Brian Rehling head of fixed income strategy at Wells Fargo Venture Institute And every corporation uses these funding markets If they get more expensive they re going to have to pass along those costs customers or cut costs by cutting jobs Related Articles Probable impact of Trump s bargain war on jobs and inflation sends US consumer sentiment plunging US wholesale inflation fell last month as price pressures eased but contract war clouds outlook US stocks jump and the bond area swings to cap Wall Street s chaotic and historic week Trump s tariffs threaten to end quarter-century era of cheap goods for US consumers The week that Trump pushed the global financial system to the brink with tariffs and then pulled back Treasury bonds are essentially IOUs from the U S establishment and they re how Washington pays its bills despite collecting less in revenue than it spends To be sure no one can say exactly what mix of factors is behind the evolving bond bust or how long it will last but it s rattling Wall Street nonetheless Bonds are supposed to move in the opposite direction as stocks rising when stocks are falling In this way they act like shock absorbers to k s and other portfolios in stock field meltdowns compensating somewhat for the losses This is Econ commented Jack McIntyre portfolio manager for Brandywine Global adding about the bond sell-off now It s left people scratching their heads The latest trigger for bond yields to go up was Friday s worse-than-expected reading on sentiment among U S consumers including expectations for much higher inflation ahead But the remarkable bond yield spike this week also reflects deeper worries as Trump s tariffs threats and erratic procedures moves have made America seem hostile and unstable fears that are not likely to go away even after the tariff turmoil ends When the issue is a broader loss of confidence in the United States even a much fuller retreat on exchange might not work to bring yields down wrote Sarah Bianchi and other analysts at financing bank Evercore ISI We re not sure any of the tools remaining in Trump s toolkit will be sufficient to fully staunch the bleeding The influence of the bond domain Trump acknowledged that the bond sphere played a role in his decision Wednesday to put a -day pause on several tariffs saying investors were getting a little queasy If indeed it was the bond territory and not stocks that made him change lesson it wouldn t come as a surprise The bond area s reaction to her tax and budget procedures was behind the ouster of United Kingdom s Liz Truss in whose days made her Britain s shortest-serving prime minister James Carville adviser to former U S President Bill Clinton also famously announced he d like to be reincarnated as the bond realm because of how much power it wields The instinctual rush into U S debt is so ingrained in investors it even happens when you d least expect People poured money into U S Treasury bonds during Financial Problem for instance even though U S was the source of the challenge specifically its housing field But to Wall Street pros it made sense U S Treasurys are liquid stable in price and you can buy and sell them with ease even during a panic so of syllabus businesses and traders would rush into them to wait out the storm Yields on U S bonds rapidly fell during that emergency which had a benefit beyond cushioning personal financial portfolios It also lowered borrowing costs which helped businesses and consumers recover This time that natural corrective isn t kicking in What s causing the sell-off Aside from sudden jitters about the U S several other things could be triggering the bond sell-off Particular experts speculate that China a vast holder of U S governing body bonds is dumping them in retaliation But that seems unlikely since that would hurt the country too Selling Treasurys or essentially exchanging U S dollars for Chinese yuan would make China s currency strengthen and its exports more expensive Another explanation is that a favored strategy of selected hedge funds involving U S debt and lots of borrowing called the basis contract is going against them That means their lenders are asking to get repaid and they need to raise cash They are selling Treasurys and that is pushing up yields that s part of it commented Mike Arone chief expenditure strategist at State Street Global Advisors But the other part is that U S has become a less reliable global partner Wells Fargo s Rehling explained he s worried about a hit to confidence in the U S too but that it s way too early to be sure and that the sell-off may stop soon anyway If Treasuries are no longer the place to park your cash where do you go he reported Is there another bond out there that is more liquid I don t think so