A dramatic spike in U.S. Treasury yields has reignited concerns about global financial stability, as geopolitical frictions and unusual bond market behavior collide in one of the most volatile trading days since March 2020.

The 10-year U.S. Treasury yield, widely viewed as a cornerstone of global finance, fell sharply to 3.9% last week following a new round of tariffs imposed by President Donald Trump on Chinese imports. Yet in an unexpected twist, yields reversed course Monday—surging to 4.22% as investor anxiety mounted. The 30-year yield also jumped, reaching 4.65% after touching lows near 4.30%.

Normally, heightened risk leads to a rally in bonds and lower yields. But this dislocation is prompting speculation about deeper, systemic stress—particularly whether major foreign holders are offloading U.S. debt.

Ole S. Hansen of Saxo Bank noted the scale of the sell-off, suggesting that long-dated Treasuries may have been dumped by foreign holders. He likened the move to the panic-driven trading seen during the early stages of the pandemic.

Whispers of large-scale selling by China began circulating, with reports claiming a $50 billion reduction in Treasury holdings. Still, not everyone is convinced by this narrative.

Jim Bianco of Bianco Research pushed back, pointing to the U.S. Dollar Index (DXY), which rallied 2.2% over three days. “If foreign entities like China were truly selling Treasuries and repatriating, we’d expect the dollar to weaken—not strengthen,” Bianco said. “This looks more like domestic concerns over inflation than a geopolitical response.”

As of January 2025, China held roughly $761 billion in U.S. government bonds, mostly concentrated in short-term instruments, agency debt, and bank deposits. Experts argue this portfolio mix makes it unlikely China was behind the pressure on longer-term yields.

Moreover, economist Michael Pettis has long maintained that China’s U.S. bond holdings reflect its macroeconomic structure, not political leverage. Attempting to weaponize these assets would likely backfire on China’s own financial system.

Still, Monday’s turmoil underscores a broader fragility in global markets. Spiking yields in the U.K. and other regions echoed the sudden shock in the U.S., raising questions about the durability of investor confidence in sovereign debt amid rising inflation, geopolitical uncertainty, and diverging central bank policies.

What’s clear is that the bond market—long considered a safe harbor—may now be a key source of global volatility.

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