Bond yields across the world tumble as tariff war fears drive investor to seek safe havens

Global bond yields have dropped sharply following US President Donald Trump's tariff announcement last Wednesday, as investors flock to safe havens amid stock market turmoil.

According to CNBC, Germany's 10-year bund --the benchmark for the euro area -- saw a decrease from 2.72% on Wednesday to 2.59% by Monday afternoon. Just last month, the yield had spiked above 2.9%, as markets anticipated a fiscal spending boost in Europe’s largest economy. With lower yields indicating stronger demand for government debt, the shift suggests a rush to safer assets in uncertain times.

Analysts from Rabobank noted, “The Bund rally is unwinding the region-wide tightening of financial conditions.” They added that even if Trump were to reverse his tariff stance, it might mitigate market panic temporarily, but would not prevent a slowdown due to the unpredictability of the policy environment.

Recession risks
Across the Atlantic, the US 2-year Treasury yield fell to its lowest level since September 2022, nearing 3.58%. Similarly, Japan's 10-year bond yield reached a three-month low after experiencing its largest weekly decline since 1998, as per CNBC report. Investors are grappling with the uncertainty surrounding Trump’s unpredictable tariff policy, pondering whether it could trigger a global growth slowdown or even a US recession.

Susannah Streeter from Hargreaves Lansdown highlighted, “The big flight to cash continues as investors seek a shelter for their money amid the tariff storm.” The fall in treasury yields is a strong indication that recession fears are being priced in.

George Lagarias, chief economist at Forvis Mazars, added that bonds are acting as a safe haven amid the volatility of the global equity market.

However, concerns remain about the sustainability of the bond rally. Lagarias cautioned that if the situation stabilizes, the demand for bonds could subside, especially with inflation still posing a risk. Moreover, he warned that central banks’ actions could influence bond market dynamics, urging investors to remain vigilant.

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