Despite President Trump's recent 90-day pause in the trade war, the bond market is still not responding positively as yields remain stubbornly high.

On Wednesday, bond yields shot up even after Trump called for a temporary halt on certain tariffs, with the 10-year Treasury yield hitting around 4.4%. This spike contradicts the administration's goal of reducing borrowing costs for Americans.

Treasury Secretary Scott Bessent had previously claimed that cutting government spending and increasing efficiency would lead to lower yields. However, as the trade war intensifies, investors are selling off U.S. bonds, causing yields to rise amid growing recession fears.

The latest tariffs on China have pushed the overall tariff rate on Chinese goods to a staggering 125%, raising eyebrows and concern among investors. This marks the highest yield the 10-year Treasury has reached since shortly after Trump took office.

Why are Bonds Falling?

Under normal circumstances, bonds are seen as a refuge during times of economic uncertainty. However, investors seem to be losing faith in U.S. Treasurys as a safe haven.

Market analysts suggest a few reasons for this sell-off: first, questions regarding the reliability of U.S. government debt amid geopolitical and fiscal instability are beginning to surface.

Additionally, there's worry that China may begin to offload its substantial U.S. Treasury holdings, potentially exacerbating the situation. As of early this year, China held about $760 billion in U.S. Treasurys.

Another contributing factor could be the unwinding of what’s known as the 'basis trade,' a significant leveraged bet on Treasurys by hedge funds which could pose risks in the current unpredictable environment.

Global Impact of U.S.-China Tensions

The escalating tensions between the U.S. and China have reached their boiling point. Following Trump’s announcement of additional tariffs, China retaliated with its own steep tariffs on American goods, making it clear that negotiations are becoming increasingly hostile.

As the trade war deepens, many experts believe that, should the economic climate take a turn for the worse, the bond market may eventually stabilize and Treasury yields could fall from their current heights.

Until then, investors are left grappling with a complex financial landscape where the repercussions of geopolitical maneuvers continue to echo through global markets.