SINGAPORE: U.S. Treasuries extended heavy losses on Wednesday in a sign investors are dumping even their safest assets as a global market rout unleashed by U.S. tariffs takes an unnerving turn towards forced selling and a dash for the safety of cash.
"This is beyond fundamentals right now. This is about liquidity," said Jack Chambers, senior rates strategist at ANZ in Sydney.
The 10-year U.S. Treasury yield, the globe's benchmark safe-haven anchor, was unmoored and long bonds were the focus of intense selling from hedge funds which had borrowed money to bet on usually small gaps between cash and futures prices.
It shot higher even as traders ramped up expectations for U.S. rate cuts and, in another signal of dislocation in markets, the dollar fell against the euro and yen.
At 4.46% the 10-year yield was up 20 basis points in Asia and some 60 basis points from Monday's low.
A three-day rise of nearly 60 basis points in 30-year yields, which spiked above 5%, would mark - if sustained - the heaviest selloff since 1981. Large, but smaller rises in yield hit sovereign bonds in Japan and Australia.
Warning signals had been flashing for a few days as spreads between Treasury yields and swap rates in the interbank market collapsed under the weight of bond selling.
Hedge funds were at the heart of it because their lenders could no longer stomach the 'basis trade' - large positions betting on small differences between cash Treasuries and futures prices as markets started to swing on tariff headlines.
"When the prime broker starts tightening the screws in terms of asking for more margins or saying that I can't lend you more money, then these guys obviously will have to sell," said Mukesh Dave, chief investment officer at Aravali Asset Management, a global arbitrage fund based in Singapore.
The highest U.S. tariffs in more than a hundred years came into force on Wednesday and strategists said a broader debate about the future of Treasuries as the centre of the global financial universe was underway.
"The UST sell-off may be signaling a regime shift whereby U.S. treasuries are no longer the global fixed-income safe haven," said Ben Wiltshire, G10 rates trading desk strategist at Citi.- Reuters
