The uproar of the stock market may have made all the headlines, but another serious crisis is flourishing in another corner of the financial market. Investors are rapidly selling the US government bonds. Usually, whenever there is a call for economic crisis, investors invest money in American Treasury, but this time it is not happening. Even the greed for more interest returns is not able to motivate investors to buy bonds.
This unusual situation is worrying experts. They believe that big banks, funds and traders are no longer seeing America as a trusted investment destination. George Sipoloni, the fund manager of Pen Mutual Asset Management, says, “There is a fear that America is losing the image of its safe haven.” Our bond market is the largest and stable in the world, but if there is instability in it, then there may be loss.
Treasury yield increased, borrowing will be expensive
The increase in treasury yields can have a direct impact on common consumers. This will increase the interest rates of home loan, car loan and other loans. According to Brian Rehling of Wales Fargo Investment Institute, as soon as the yield goes up, your borrowings become expensive. Companies will also be affected by these lending rates and will either increase prices or reduce jobs to save cost.
Trump’s tariff policy is also a reason
Treasury bonds are actually the IOU receipts of the US government, through which the government runs its expenses. Last week, the 10-year-old Treasury’s yield was 4.01%, which rose to 4.58% on Friday and then decreased slightly to 4.50%. The bond market gives relief at the time of decline in the stock market, but this time it is not happening.
Experts say that the tariffs and uncertain policies declared by Trump have raised questions on the stability of America. Investors are no longer considering America as much reliable. Investment Bank Evercore ISI analyst writes Sara Bink, if the matter is due to the widespread lack of trust in the US, then only the back from the trade will not be able to reduce the yield.
China and hedge funds are also suspected
Some experts believe that China, who is a great holder of American bonds, is now selling them. However, this will strengthen China’s currency and its exports will be expensive, so this possibility is being considered less. Another reason may also be a failure of a hedge fund strategy called Bays Trade, in which bonds are being sold to raise cash due to over -borrowing.
Is the Treasury no longer reliable?
Rehling of Wales Fargo says, if the Treasury is no longer the place where you can keep your cash, then what is the option? Is there any bond that is more liquid than this? I don’t think
This time, like 2009, natural balance is not working, when adding money in American bonds reduced interest rates and consumers were relieved. This time the selling of bonds is confusing investors, and the market can increase the instability.