Bond markets are choppy right now and could head in one of two directions. So far this month, we’ve seen both the stock and bond markets sell off simultaneously, which is a rare occurrence.
We’ve seen a zigzag market in bonds. The market is trying to price itself amid the tariff war, while President Trump is barking down Jerome Powell’s neck (threatening to fire him, if he can) to cut rates and not be “Too Late.”
Despite the volatility, there’s been a notable shift in investor behavior:
Short-Term Treasuries are gaining momentum. Investors are increasingly favoring short-term government bond funds, seeking safety and liquidity amid market turbulence. These funds have attracted significant inflows, reflecting a preference for lower risk and capital preservation.
Conversely, long-term Treasury funds have experienced outflows, as concerns about inflation and interest rate risks make longer durations less attractive to investors.
Who Is Selling and Why Might It Be a Good Time to Buy?
There are two large bondholders incentivized to sell bonds right now: China and Warren Buffett (although it seems funny to see them paired in the same sentence). With major escalation happening in the trade war, the night before April 9th, someone (probably China) dumped a significant number of Treasuries, causing yields to spike drastically on both the 10-year and 30-year Treasuries. Hours later, Trump called off the tariffs and put a 90-day pause on all nations except China. China dumping treasuries was a stab in the back of the U.S. financial system and appears to be a counterattack to the tariff economic war they are in.
Warren Buffett and Berkshire Hathaway have been sitting on a record number of treasuries for the past year, most likely waiting for a dip like the one we see right now. I’m speculating, but I would imagine the Oracle of Omaha is excited to see the markets fall while he’s sitting on $334 billion in cash. However, most of that cash is locked into treasuries that need to be made liquid. He could be one of the major sellers in this volatile bond market.
My Current Outlook
Looking ahead, bond strategists anticipate that U.S. Treasury yields may decline, despite current market turmoil. A Reuters poll suggests that the 10-year yield could decrease to a median of 4.21% by the end of June and to 4.14% within a year.
However, major investment firms like PIMCO express caution, highlighting that heightened protectionism and unpredictability challenge the traditional perception of U.S. assets as safe havens. This shift may lead investors to consider diversifying into bonds from other countries or inflation-sensitive assets.
We are now “one or two tweets away” from Trump announcing that 80-plus countries have struck a new trade deal, and we’re entering a New World Order of trade. If this happens, it should bring much-needed confidence back to the markets. For now, we’ll use the phrase we continue to hear from Jerome Powell — we will wait and see.
