April 9, 2025
Tariffs, Treasuries, and Tumbling Bonds: Why Rates Are Spiking
Bonds, rates, and tariffs—oh my.
Mortgage-backed securities (MBS) are down nearly a full point, and the 10-year Treasury yield has climbed over 14 basis points to 4.44%. This marks the biggest two-day jump in rates so far this year and pushes the average 30-year fixed mortgage rate to its highest point since late February.
While today’s move wasn’t quite as dramatic as yesterday’s, it’s no less significant. The market is clearly expressing strong disapproval of the latest tariff proposals. Just a few days ago, interest rates had been cushioned by stock market volatility—but now, that safety net is gone. Both stocks and bonds are taking a hit: stocks are falling, and rates are rising.
What’s Driving the Volatility?
The current market reaction isn’t tied to a single, simple cause—this one’s layered. Here’s a breakdown of what’s going on:
Tariff tensions are fueling fears of a slowdown in global trade, which would reduce tariff revenue and increase the odds of a recession.
Less revenue + recession risk = more U.S. Treasury issuance to fill the gap, which typically pushes yields (and mortgage rates) higher.
Foreign demand for Treasuries may drop as international trade cools. Countries that normally buy Treasuries with dollars earned from U.S. trade may simply have fewer dollars to spend.
Inflation risk could rise short term due to tariff-related price increases.
Stock-bond correlations are shifting—they’re no longer moving in opposite directions like they were. The “safe haven” bid for bonds is fading.
Short-term vs long-term rates: While 10-year yields are up sharply, 2-year yields are actually down a bit. The curve is flattening as markets bet on future rate cuts by the Fed, even as long-term concerns drive selling in the bond market.
On top of all this, we’re in the middle of a heavy week of Treasury auctions. Investors often step back ahead of these, unwilling to pay top dollar for bonds (which is the same as demanding higher yields) until the dust settles.
