“Trade policy uncertainty” has become every investor’s nightmare.
If you were hoping for a calm week in the markets, the bond market has something to say. As investors place their hopes on upcoming tariff negotiations with Japan, China, and Mexico, the market is signalling that the real story might not lie in the handshakes, but rather in the yield spikes and asset jitters.
This week, we explore the unfolding drama of tariff-induced turmoil, where Treasury selloffs and inflation worries are engaging in a dance that investors never requested. The demand for safe-haven assets is changing, and investors are realising that tariffs are more than just a geopolitical chess match — they are transforming portfolio strategies and prompting a reevaluation of what constitutes a “safe” investment.
Markets may crave clarity, but they’re getting volatility. Dive in — this is one edition of The Market Pulse you’ll want to read twice.
This Week I Learned…
The Inflation Hedge That’s Feeling the Heat
This week, I learned that Treasury Inflation-Protected Securities (TIPS) — long considered a reliable hedge against inflation — may be losing their appeal right when investors need them most.
TIPS are designed to protect against inflation by adjusting their principal in response to changes in the CPI. However, given current market dynamics, investors are discovering that not all inflation protection is created equal. The latest $25 billion auction of 5-year TIPS experienced muted demand, especially from indirect bidders, signalling that global investors may be questioning not only the inflation outlook but also the stability of U.S. debt strategies.
Why the hesitation? For starters, tariff-driven inflation might not be a one-time spike. If these cost increases become entrenched, TIPS could underperform relative to expectations, especially if the Fed’s policy response remains limited. Adding to that are liquidity risks and recent price volatility, making inflation protection appear less effective.
The Fun Corner
Why Did the Bond Yield Jump? It Heard Tariffs Were Coming.
Markets might not laugh much these days, but we can.
Did you hear about the bond trader who brought a fire extinguisher to the trading floor?
He figured with Treasury markets this volatile, he’d need to put out a yield fire before lunch.
But jokes aside, did you know that the U.S. Treasury market is more than 25 times the size of the corporate bond market? That’s trillions of dollars reacting to every policy tweet and tariff headline. No wonder traders are developing reflexes faster than Olympic athletes.
Just remember: volatility may feel like chaos, but it’s often just the market’s way of repricing reality.
Inflation Risks, Trade Talks, and the Safe Haven No More?
The world’s most liquid bond market — U.S. Treasurys — is currently far from predictable. Tariff uncertainty, inflation risks, and Fed policy constraints have generated a volatile mix that is increasingly unsettling investors across asset classes.
The Treasury market has recently experienced aggressive selloffs followed by sharp rallies, not as indicators of market strength, but rather as a sign of confusion. Much of this can be attributed to uncertainty regarding the final form of U.S. trade policy. While talks with Japan and China are ongoing, investors are operating under the assumption that no news may be bad news, and even good news might not be good enough.
Simultaneously, inflation expectations are rising. Core CPI may spike as high as 3.7%, according to estimates, while derivative-based instruments indicate prolonged inflation pressure through mid-2026. This typically increases demand for TIPS; yet even these securities are struggling, as poor auction demand and rising real yields lead to losses for funds holding them.
As the market attempts to price in a potential tariff-induced recession, the question becomes: can Treasurys still act as the ultimate haven? Foreign investors and major institutions appear less convinced, with weaker demand in recent TIPS and short-duration auctions.
Trade policy may still find direction, but markets are already reacting as if the die has been cast. The volatility in early April might only be the beginning — unless investors get what they crave most: clarity.
The Last Say
Trade Uncertainty Is the Market’s Most Expensive Asset
As we close this week’s edition of The Market Pulse, one thing is clear: investors aren’t just pricing in tariffs, they’re pricing in uncertainty itself.
Markets are moving not based on actual changes to tariff levels but rather on speculation, paused policies, and diplomatic ambiguity. It’s not just equities feeling the pain; the bond market, traditionally the sober cousin of stocks, is now a theater of sharp reversals, weak auctions, and shifting inflation forecasts.
TIPS auctions are lukewarm. Treasury yields are fluctuating. Inflation concerns are rising. And despite assurances of progress in U.S.-Japan trade talks, stocks still declined, indicating that traders have elevated their expectations for meaningful outcomes — or are simply preparing for the next setback.
The broader implication is this: when trade uncertainty becomes the new normal, traditional investment frameworks are tested. Treasurys might still rally on some days, but faith in their role as a dependable anchor is eroding.
Next week’s economic data may provide additional signals, but investors shouldn’t expect a resolution. Instead, positioning for durability and diversification — while keeping an eye on every headline — is the only way to navigate a policy-driven market storm.
