Tariffs, Federal Reserve independence, European pension reform... What exactly is making the global long-term bond market anxious?

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A sell-off without a clear trigger has once again tightened nerves in the global long-term bond market.

This week, the global long-term bond market experienced a sudden and dramatic upheaval. Notably, the yield on 30-year U.S. Treasuries briefly broke through the critical psychological threshold of 5%, prompting a chain reaction of corrections in the stock market.

However, according to the latest analysis by The Wall Street Journal on September 6, this round of selling lacked any obvious trigger event. Fund managers and market analysts have various opinions on the cause, highlighting how the market is being troubled by a series of complex and vague anxieties. These range from uncertainties over tariff policies, worries about central bank independence, to political turmoil across the ocean; several factors are intertwined, suggesting that weak demand for long-term bonds may continue to persist.

Tariff Ruling: The Seemingly Reasonable “Culprit”？

A widely discussed potential trigger is a ruling by a U.S. federal court, which found that the Trump administration could not impose tariffs on the grounds of a state of emergency. In theory, this might lead the government to refund billions in taxes, further worsening an already grim federal fiscal outlook. This explanation appears to fit the timeline: the ruling was issued last Friday, while the market experienced its worst sell-off on Tuesday.

However, there are many contradictions in this logic chain. If companies are to receive billions in refunds, their stock prices should have risen, but such gains did not materialize in the stock market. At the same time, removing tariffs should eliminate a key obstacle to inflation, and the market should expect the Fed to have more room to cut rates, yet the rate market did not price this in. Moreover, if the market is concerned about U.S. finances, foreign investors would likely sell the dollar, but the dollar actually strengthened.

Long-Term Worries: Fed Independence and Government Borrowing

Concerns over the independence of the Fed are another long-standing risk. If central banks are subject to political interference, this usually leads to rates being set too low, which in turn drives up long-term inflation and hurts long-dated bonds. However, market data does not support this view. A key indicator of the market’s long-term inflation expectations—the 5-year/5-year forward breakeven inflation rate—remained stable at 2.34% at Tuesday’s close, right within this year's fluctuation range, even during the worst of the sell-off.

Similarly, worries about massive U.S. government borrowing are nothing new. The large fiscal deficit post-pandemic means U.S. debt as a share of the economy will continue to rise, naturally requiring higher yields to attract investors. But data shows that yields on 30-year Treasury inflation-protected securities (TIPS) only rose slightly, while the more liquid 10-year TIPS yield has actually fallen sharply from April highs.

Europe in Turmoil: Dual Pressures of Politics and Structural Reform

Turning to the other side of the Atlantic, Europe’s situation is equally unsettling. France has become politically gridlocked as its minority government struggles to implement a budget to cut deficits, sending the premium on France’s 10-year government bonds over German bunds to its highest level since the 2012 eurozone debt crisis. In the UK, the government’s budget woes and weakening pension demand continue to weigh on gilts (UK government bonds).

But this time, the traditional safe-haven logic did not hold. In the past, when investors worried about the eurozone, they would flock to German bunds considered a safe haven, but this has not happened recently.

Even more noteworthy is a deeper structural shift—pension reform in the Netherlands. According to reports citing Goldman Sachs data, the Netherlands owns about 80% of the eurozone's pension fund assets. These funds are moving from traditional defined-benefit schemes to models more closely tied to investment performance.

This means their demand for ultra-long-term derivatives and bonds used to lock in future returns will drop significantly, and more capital may flow into stocks. Although this reform will take years, it foreshadows the quiet exit of one of Europe’s main long-term bond buyers, constituting a real negative for future demand for long bonds.

In summary, whether tariffs, fiscal worries, or European politics, none appears capable of independently explaining this sudden market turmoil.

As the report notes, perhaps that old market joke—“prices fall because there are more sellers than buyers”—is actually the most accurate description. But taking all these factors together, they all point to one unsettling outlook: weak demand for long-term bonds may persist.

Risk Warning and DisclaimerThe market involves risks, and investment should be prudent. This article does not constitute personal investment advice, nor does it consider any individual user's specific investment objectives, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article suit their particular circumstances. You invest at your own risk. ```