Investors Flee Long-Dated Treasurys as Yield Demands Spike Amid Policy Uncertainty

The Treasury market is undergoing a dramatic steepening twist as investors retreat from long-dated bonds, sending yields soaring. This divergence reflects deepening anxiety over inflation risks and the unpredictable fallout from former President Trump’s trade policies.

Term premiums are driving the surge in longer-term yields, which have decoupled from traditional correlations with short-rate expectations. The breakdown poses a significant challenge for Federal Reserve officials attempting to maintain stable credit conditions while navigating conflicting economic signals.

Market participants appear increasingly skeptical of inflation moderation forecasts, with trade policy chaos from April’s tariff announcements continuing to distort risk assessments. Borrowing costs are already rising across multiple sectors, potentially undermining growth prospects despite anticipated Fed rate cuts.