Markets offer relief but headwinds could emerge anytime

by Ye Xie, Bailey Lipschultz and Alexandra Semenova

Wall Street on Monday finally caught a respite from the deep selloffs and unusually sharp swings that have raced through markets ever since President Donald Trump unleashed his global trade war. 

That was most evident in the Treasuries market. US government bonds rebounded from a five-day selloff that last week sent 10-year yields surging by the most in over two decades and fanned fears that an accelerating exodus from the securities would push the financial system toward a crisis. 

The relief — however fleeting it may turn out to be — was echoed in the equity market, where major indexes saw modest gains after Trump extended a temporary tariff exemption to imports of smartphones and other electronics and did nothing new to accelerate his conflict with China. 

“No news is good news in this environment,” said Adam Phillips, managing director of investments at EP Wealth Advisors.

“We’re not saying the bottoms are in — we’re hopeful they are — but things can flare up at any time. One press conference or post on X could spark new headwinds,” he said. “We’re not in the clear yet.”

The bond market’s recovery pulled down the benchmark 10-year Treasury rate by about 12 basis points on Monday as bonds advanced across the curve. The move extended on Tuesday in Asia, with the 10-year yield falling three basis points to 4.35%. Yields on Australia and New Zealand sovereign notes also dropped. 

The rebound in bonds eased concerns that built last week, when a steady rise in yields threatened to deal the US economy another hit by pushing up the cost of all kinds of loans. There was speculation it may worsen as Trump undermines confidence in US policy, with some speculating the Federal Reserve would potentially need to step in.

But yields had risen so much — and so quickly — that by Monday some on Wall Street were seeing it as a chance to buy, especially since bonds will likely gain if the economy stalls and the Fed resumes cutting interest rates. 

Treasury Secretary Scott Bessent moved to tamp down concerns about the market in an interview with Bloomberg Television, saying he has tools to steady it, such as buybacks, if needed. He also said there’s no evidence that overseas governments are selling their stockpiles of Treasuries. 

JPMorgan Asset Management’s Bob Michele, the global head of fixed income, said in an interview on Bloomberg Television that Treasuries may have hit bottom. Barclays Plc said five-year notes were attractive given the “downside risks.”

“You do appreciate some of the stability in the market,” said Vishal Khanduja, head of broader fixed-income markets at Morgan Stanley Investment Management. “These yield levels are compelling for a country that is going into a slower growth environment at best.”

There remains little doubt that Trump’s shifting tariff policies are poised to exert a major drag on the economy by keeping businesses in wait-and-see mode and damping consumer confidence. Wall Street traders dazed by the rapid-fire reversals in the days since Trump’s tariff announcements said they have no confidence the volatility is over with.

The VIX Index — known as Wall Street’s fear gauge — remains higher than it was on April 2, even though it has pulled back from recent peaks. A similar gauge for the Treasury market points to continued volatility. The 10-day realized volatility on the S&P 500 remains at the highest since the early days of the pandemic.

By recent standards, though, the swings on Monday were far less jarring than last week, when the S&P 500 swung more than 10% in a single session. The S&P 500 ended the day up 0.8% after paring its gains late in the trading day. 

“What we’ve experienced over the last couple of weeks is it feels like the administration is trying to get its footing on its international trade policy in real time,” said Keith Buchanan, senior portfolio manager at Globalt Investments. “We’re all trying to figure out what the heck is going on.”

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