The U.S. bond market has stabilized after U.S. President Donald Trump walked back many of his tariff measures.
Following a sharp selloff in bonds on April 9, with yields on the 10-year Treasury spiking as high as 4.50%, the market for fixed income investments has calmed. The 10-year Treasury yield has declined by more than 10-basis points to 4.30%, and the two-year Treasury yield also fell over 10-basis points to 4.295%.
The move lower in yields comes after a period of extreme and unusual volatility in the bond market that was prompted by massive selling of U.S. Treasuries. One basis point is equal to 0.01% and yields move in opposite direction to prices. The volatility in the bond market was unexpected as investors typically run to the safety of U.S. Treasuries during times of volatility.
Theories and Speculation
There has been widespread speculation that foreign governments such as China and Japan were selling U.S. Treasuries in an effort to sink the market and pressure President Trump. While Trump announced he is lowering the tariff rate on most countries to 10%, he also ratcheted up the tariff on Chinese imports to 125%, sparking concerns of a trade war between the world’s two biggest economies.
For now, the bond market is calm and demand for the latest auction of 10-year Treasury notes appears strong. However, the current calm could be short lived as investors digest U.S. economic data, namely the March Consumer Price Index (CPI) that showed core inflation eased to an annualized rate of 2.4%.
Is the Vanguard Total Bond Market ETF a Buy?
Most analysts don’t offer ratings or price targets on the Vanguard Total Bond Market (BND) exchange-traded fund (ETF). So instead, we’ll look at the ETFs performance over the past three months. As one can see in the chart below, the ETF has risen 2.85% in the past week.
