How Trump’s Tariff War Is Shaking Bond Yields In The US & India

Key Insights

• Donald Trump’s aggressive tariff policies have rattled global markets, especially the bond market.

• Bond yields, which move inversely to bond prices, are surging as investors sell off US Treasuries.

• This signals a possible loss of faith in the US government’s fiscal stability.

• Higher yields mean costlier borrowing across the economy, raising red flags of a slowdown.

• India’s bond market, however, has stayed relatively calm, thanks to RBI interventions and lower direct exposure to US tariffs.

• Some experts warn that US bond market tremors could be an early sign of recession risks—similar to 2008.

Trump’s Trade Shockwaves

Just five months into his second presidential term, Trump has been firing trade salvos left and right. A blanket 10% tariff on Chinese imports was announced within days of taking office, followed by threats of a 26% levy on Indian goods and steep duties of up to 245% on certain Chinese products.

The fallout? Stock markets plunged, but what really set alarm bells ringing was the exodus from US Treasury bonds. For many economists, this echoed the prelude to the 2008 recession—when yields spiked as investors abandoned bonds.

Trump eventually had to suspend reciprocal tariffs after watching Treasury markets wobble under heavy selling.

What Exactly Are Bond Yields?

A bond yield is essentially the return you earn for lending money to a government or company. The catch: yields and prices move in opposite directions.

Example:

• A $1,000 bond paying $50 annually → yield = 5%.

• If the price drops to $900 → yield = $50 ÷ $900 = 5.56%.

• If price rises to $1,100 → yield = $50 ÷ $1,100 = 4.55%.

👉 In short, when demand for bonds falls and prices dip, yields climb.

Why Investors Are Offloading US Treasuries

Normally, during market turmoil, investors rush into Treasuries as they’re considered the world’s safest assets. But this time, despite equity selloffs, investors dumped long-dated Treasuries, pushing yields higher.

That’s unusual—and worrying. It hints that traders are losing trust in Washington’s ability to manage its debt, spooked by erratic tariff moves and ballooning fiscal deficits.

Higher yields suggest it’s now riskier (and costlier) to lend to the US government, amplifying fears of an impending slowdown.

Why Rising Yields Spell Trouble

When yields rise, the government and private sector both face higher borrowing costs. The 10-year Treasury yield, a benchmark that shapes everything from home loans to corporate financing, surged past 4.5% recently.

With America’s debt mountain standing at $36 trillion, even small increases in borrowing costs could strain the economy. Rising yields aren’t just numbers—they ripple into mortgage rates, startup funding, business loans, and everyday credit.

Is The US Bond Market Stabilizing?

After Trump temporarily froze tariffs (except on China), yields cooled slightly, though they remain elevated.

Analysts Reuters surveyed expect the 10-year yield to ease from 4.59% to around 4.2% by June, and closer to 4.1% in a year. Whether that actually happens depends on how far Trump takes his trade brinkmanship.

Is A US Recession Lurking?

The bond market often signals stress before equities do. In 2008, yields told the true story well before the stock crash.

If Trump’s tariffs keep inflating yields while debts pile up, the probability of a US recession cannot be dismissed.

How India’s Bond Market Is Reacting

While the US struggles, India’s bonds have been an outlier. Global funds are redirecting money into India as a safer bet.

• RBI’s rate cuts and liquidity injections have pushed yields lower.

• The 5-year bond yield slid to 6.26%, the lowest since early 2022.

• The 10-year benchmark eased to 6.45%, defying global trends.

India is also less directly exposed to US tariffs—accounting for just 2.7% of US imports, compared with China’s 14% and Mexico’s 15%. This, along with India’s growing role as a China+1 manufacturing hub, has kept the country’s debt market resilient.

Outlook For India’s Debt Market

With the RBI announcing plans to buy ₹80,000 crore worth of bonds, liquidity support looks strong. Indian yields have already dropped about 20 basis points this fiscal year and may fall further.

For retail investors, the message is clear: while US yields may be flashing danger, India’s bond market is showing stability and optimism.

Final Thoughts

Trump’s tariff wars have unleashed volatility across global markets, but the real story may lie in bonds, not stocks. A US Treasury selloff, surging yields, and debt concerns resemble early signs of past recessions.

India, on the other hand, has weathered the storm well. Lower exposure to US tariffs and proactive RBI steps have positioned its bond market as a relative safe haven.

As investors watch for cracks in the US economy, India’s bond market could continue to shine as one of Asia’s bright spots.