US treasury yield surged, futures drop sharply and global markets tumble as US-China trade war deepens
Global markets experienced significant declines on Wednesday as the US-China trade war escalated. China retaliated to US tariffs with an announcement of new levies of 84% on US goods, causing US equity futures to fall by 1.7%. European stocks also slumped, losing more than 4%, according to Bloomberg.
The selloff continued as the yield on 30-year US Treasuries surged above 5% for the first time since November 2023, signalling growing concerns about the US bond market’s status as a safe haven.
The surge in bond yields spread across global markets, with UK borrowing costs rising to their highest levels since 1998 and Japanese 40-year bond yields hitting a record peak. The US dollar weakened for a second consecutive day.
“We’re well into an escalation phase in the trade war, and investors have nothing to hold onto at the moment,” said Alexandre Baradez, chief market analyst at IG Markets. “What’s clear now is that the US bond market is no longer a safe haven and is piling pressure on stock markets,” as noted by Bloomberg.
Shares of major pharmaceutical companies like Pfizer, Eli Lilly, and Bristol-Myers Squibb dropped by approximately 3% after President Trump mentioned the US would soon announce “a major tariff on pharmaceuticals,” according to Bloomberg.
The intensifying trade conflict, with tariffs on China increasing to 104%, has raised alarms. Investors, including Bill Ackman, and economists at JPMorgan and Goldman Sachs have upped the likelihood of a US recession. This could complicate the Federal Reserve’s response to potential inflation driven by the new tariffs.
Ray Dalio, founder of Bridgewater Associates, warned of a “once-in-a-lifetime” breakdown in global monetary, political, and geopolitical systems. Meanwhile, Alexandre Hezez, CIO at Group Richelieu, highlighted concerns about high volatility potentially triggering market accidents.
The 10-year US Treasury yield rose by five basis points to 4.35%, while the dollar index fell. Investors flocked to safer assets, including the Japanese yen and Swiss franc, as the euro climbed above $1.10, according to Bloomberg.
Market Summary
- Stocks: S&P 500 futures fell 1%, Nasdaq 100 futures dropped 0.8%, and Dow futures declined 1.3%. The Stoxx Europe 600 dropped 3.8%, Bloomberg reported.
- Currencies: The Bloomberg Dollar Spot Index dropped 0.5%, the euro rose 0.7% to $1.1039, the British pound gained 0.4% to $1.2815, and the Japanese yen rose 1% to 144.82 per dollar.
- Cryptocurrencies: Bitcoin fell 0.7% to $76,482.09, and Ether dropped 1.3% to $1,460.84.
- Bonds: 10-year Treasury yields rose to 4.38%, while UK and Germany’s yields also climbed.
- Commodities: WTI crude oil fell 5.7% to $56.21 per barrel, while gold rose 2.5% to $3,057.26 per ounce, as per Bloomberg.
As the trade war deepens and market volatility increases, global investors remain on edge, anticipating further economic challenges.
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