The recent trade war has significantly impacted US Treasury markets, with the 10-year yield rising above 4.51% coinciding with President Trump’s 104% tariff on Chinese imports. Market analysts are concerned about potential large-scale selling by foreign bondholders, although the abrupt movements might indicate a more troubling unwinding of the basis trade used by hedge funds. This unwinding could lead to massive selling, exacerbating the rise in yields due to margin calls. Historical comparisons to the 2020 yield spike suggest that market interventions may be necessary if conditions worsen. Despite the turmoil, recent Treasury auctions showed strong demand from indirect bidders, representing foreign interests, although the participation of direct bidders has decreased. The Fed's response to the situation remains unclear, with predictions of an interest rate cut actually diminishing. Market experts express uncertainty about the overall financial landscape, with some predicting severe economic implications due to the rising deficit and potential recession.

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