Treasury market has worst day in months after Trump threatens European allies with tariffs related to Greenland

By Vivien Lou Chen

The yield on the 30-year U.S. government bond jumped by the most in one day since July 11 on Tuesday, in a sign of worry about the impact of tariffs on inflation

U.S. government bonds were taking a beating after President Donald Trump's latest tariff threat against Europe.

Long-dated U.S. government debt got slammed on Tuesday as nervous investors reacted to President Donald Trump's plans to slap 10% tariffs on imports from eight European countries beginning next month.

Tuesday's selloff within the $30 trillion Treasury market sent the 10-year yield BX:TMUBMUSD10Y up by as much as 8.1 basis points to an intraday high of 4.31% during the New York session. The benchmark yield then settled at a five-month high of 4.29%, up by 6.4 basis points on the day, based on 3 p.m. Eastern time figures from Dow Jones Market Data. The 30-year bond BX:TMUBMUSD30Y had an even worse performance. It finished with its biggest one-day selloff since July 11, when the long bond was rocked by renewed fears about U.S. trade wars with Canada and Europe. On Tuesday, the 30-year rate jumped as much as 11.2 basis points to an intraday high of 4.95% and end at a more-than-four-month high of 4.92%, up by 8.1 basis points in U.S. trading. Yields and bond prices move in opposite directions, meaning that yields spike during aggressive selloffs of the corresponding Treasury maturity.

Investors used the bond market on Tuesday to express their worries about global geopolitical uncertainties stretching from the U.S. to Europe and Japan. Those fears centered on the risks of a continued selloff in U.S. assets and of a broad-based bond-market crisis that drew comparisons to the one that unfolded in the U.K. more than three years ago.

Europe ranks as one of the biggest holders of U.S. government debt. The euro area combined with Belgium, Luxembourg and Ireland held a total of more than $1.5 trillion in Treasurys as of last year. And European-based market participants were not taking kindly to Trump's latest trade move.

Danish pension fund AkademikerPension, for example, was reportedly set to divest its holdings in the U.S. government bond market by the end of the month. "The U.S. is basically not a good credit and long-term the U.S. government finances are not sustainable," Anders Schelde, chief investment officer at AkademikerPension, told Bloomberg on Tuesday.

By quickly breaking through trading ranges that have prevailed for months, 10- and 30-year Treasury yields - which influence the cost of borrowing on everything from mortgages and consumer loans to corporate bonds - signaled that broader risks may lie ahead. This was the case even though Tuesday's bond-market selloff moderated in the afternoon.

The 10-year yield jumped past 4.25% on Tuesday partly because of "rising rumors that Europeans could 'weaponize their U.S. assets' - yes, weaponize is the word being used - to retaliate against Mr. Trump's aggressive trade and geopolitical policies," Ipek Ozkardeskaya, a senior analyst at Swiss-based digital bank and online trading platform Swissquote, said in a note.

Europeans hold roughly $10 trillion in total U.S. assets, around $6 trillion of which is in American equities, Ozkardeskaya said. "Selling those assets would pull the rug from under U.S. markets" and could possibly get Trump's attention. However, it would also force European investors, private and public, to "willingly accepting financial pain to punish the U.S." - something that is hard to imagine at this point.

Tom Nakamura, head of fixed income and currencies at AGF Investments in Toronto, said the U.S. Treasury market tends to reflect "a lot of different views. In times of stress or global concerns, it can act as a lightning rod for the expression of those factors."

In his view, Tuesday's bond-market selloff was driven by two main things. The first has to do with concerns about Trump's desire to acquire Greenland from Denmark, which sparked the president's latest threat of tariffs against Europe. These trade concerns triggered near-term worry about economic growth and raised the possible need for easing by central banks, while also stoking long-term fears about inflation and fiscal risks, he said in a phone interview. All of this led to what's known as a steepening of the Treasury curve, a dynamic in which the difference between short-term and long-term yields widens. The second catalyst for Tuesday's moves was Japan, with investors keeping an eye on whether Prime Minister Sanae Takaichi will be able to deliver a large boost for the economy.

Also read: Japan's long-bond yields surge to record highs. Why it may be a problem beyond Tokyo.On Tuesday, Japan's 40-year bond yield BX:TMBMKJP-40Y surged to 4.215%, its highest level since its introduction in 2007. The long-dated bond was continuing to "bleed" and was creating a "shock" that was transmitting across global rates markets, according to Pooja Kumra, a senior European and U.K. rates strategist for TD Securities. "De-risking and margin calls remain material risks to trigger broader market repercussions," she said - similar to the severe market disruptions seen during the 2022 U.K. gilt crisis, which stemmed from the British government's unfunded tax-cut plans.

It will take a lot more than Tuesday's moves in the U.S. bond market, however, to create more long-term doubts about its attractiveness to investors.

The U.S. bond market "remains the largest and most liquid" in the world and "is central to a lot of financial-system plumbing," said Nakamura of AGF Investments. "While we can have these concerns on the margins, in terms of that role being diminished materially, it is likely to be a long process. We have a long time before we get concerned about a protracted selloff in Treasurys."

-Vivien Lou Chen

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01-20-26 1618ET