Investors typically flock to U.S. Treasury bonds to avoid financial market turbulence. During the global financial crisis, the 9/11 event, and even when the U.S. credit rating was downgraded, U.S. Treasury bonds managed to rebound.

However, in early April, something unusual occurred during the chaos triggered by President Trump's "reciprocal" tariffs. As stocks and risky assets like cryptocurrencies plummeted, U.S. Treasury bond prices not only failed to rise but also declined. The U.S. Treasury bond yield recorded its largest weekly increase in over two decades.

Historically, the U.S. Treasury market, valued at $29 trillion, has been viewed as a safe haven during market volatility, which has been a unique advantage of the world's largest economy. For decades, it has helped the U.S. control borrowing costs. Recently, however, U.S. Treasury bond trading has begun to resemble a risky asset. Former Treasury Secretary Lawrence Summers even stated that U.S. Treasury bonds are performing like emerging market debt.

This has profound implications for the global financial system. As the global "risk-free" asset, U.S. Treasury bonds are used as a benchmark for pricing various assets from stocks to sovereign bonds and mortgage rates, and also serve as collateral for trillions of dollars in daily loans.

Below are some perspectives from investors and market forecasters explaining the unusual U.S. Treasury bond volatility in April, along with potential alternative "safe havens".

Tariff-Driven Inflation

Even though Trump has temporarily suspended most "reciprocal" tariffs for 90 days, tariffs on China remain far higher than previously expected. Tariffs on cars, steel, aluminum, and various goods from Canada and Mexico continue, and Trump has threatened potential additional import tariffs.

There are concerns that businesses will pass these tariff costs to consumers through price increases. Inflationary impacts would dampen demand for Treasury bonds, as they would erode the future value of fixed income payments.

If prices surge alongside economic output decline or zero growth (stagflation), monetary policy will enter a new uncertain period, with the Federal Reserve forced to choose between supporting economic growth and curbing inflation.