US Bond Market Turmoil: Causes and Global Implications

 In April 2025, the global financial markets witnessed a dramatic sell-off in U.S. government bonds, with 10-year Treasury yields rising by 50 basis points in just five trading sessions—the sharpest weekly spike in over two decades. This turbulence followed the unexpected announcement of U.S. tariffs on April 2nd, which rattled both equity and bond markets.

Initial narratives blamed the sell-off on Chinese bond sales and concerns over de-dollarization. However, Sundaram Mutual’s analysis highlights that these explanations were premature. The real drivers were multi-faceted: equity investors liquidating positions to meet margin calls, hedge funds unwinding bond-basis trades, reduced market absorption capacity by primary dealers, and a lack of Federal Reserve intervention.

These developments underscore the fragility of bond markets amid rising U.S. fiscal concerns. More importantly, they demonstrate how interconnected global policy moves and investor behavior can create significant volatility, even when economic fundamentals remain unchanged.

Rising bond yields also signal higher borrowing costs for both the U.S. government and corporates, potentially impacting global liquidity and investment flows—an essential consideration for emerging markets like India.