Investing Ideas

What to make of the recent bond market volatility

We’ve seen some unusual behavior amid yields that have been above their historical average.

By: Beau Coash

Updated: 4/21/2025

Key Takeaways

The bond market has experienced unusual behavior in April, with U.S. Treasury yields initially dropping after the announcement of U.S. tariffs on April 2, then rising by about 60 bps over the ensuing five days, marking the swiftest move higher for 10-year yields since 2008.
It’s still not clear whether foreign holders, including China, may have contributed to the bond sell-off.
The expected countermovement between stocks and bonds has not been observed over roughly the past two years due to inflationary pressures (although it did in the two days following the April 2 tariffs announcement). Over longer time frames, bonds have provided portfolio stability and mitigated equity risks during many past market downturns.
The term premium for U.S. Treasuries has risen to a decade high, reflecting higher compensation demands for holding long-term debt. This is likely due to potential fiscal policy changes and rising U.S. indebtedness that points to possible long-term risks regarding inflation and interest rates.
The good news in the near term is that higher yields provide investors with a bigger cushion against future price declines. As of March 31, the 4.6% average yield for bonds in the Bloomberg U.S. Aggregate Bond Index stood at 75% of its historical range from April 2005 to March 2025. It has since moved higher.

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What to make of the recent bond market volatility

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