Under the impact of tariffs, investors are withdrawing from risk assets, leading to a &#34;Black Monday&#34; in global stock markets, with U.S. stocks falling for four consecutive days. However, as two major safe-haven assets, the U.S. dollar and U.S. Treasuries are also facing sell-offs.
After the new tariff policy was implemented on April 2, the U.S. dollar index sharply fell by 1.6% the next day, breaking below the 102 mark.
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Although the yield on 10-year U.S. Treasuries has maintained a stable downward trend for two consecutive days, it surged more than 18 basis points on Monday, reporting at 4.1835%.
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The yield on 2-year U.S. Treasuries even rebounded by more than 40 basis points, moving away from two-year lows.
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<h2>U.S. Dollar Unexpectedly Weakens: Increased Risk Premium and Economic Recession Outlook</h2>
Unlike the usual scenario where the U.S. dollar strengthens during market turmoil, the dollar index significantly weakened after the new tariff policy was implemented.
Citi's Chief Global Economist Nathan Sheets commented:
<blockquote>
“In previous crises, the dollar and U.S. assets have always been a safe haven. But as we change our trade rules with the rest of the world, will this increase the risk premium?”
“I worry that the expectation of sustained demand for U.S. assets, which past generations have taken for granted, may now be a mistake. Perhaps we will ultimately exclude this risk, but this issue must be taken seriously.”
</blockquote>
Nordwig also noted the unusual movement of the dollar last week:
<blockquote>
“ The growth outlook for the U.S. may be facing risks we haven't seen in a long time. U.S. consumers may face a tax hit equivalent to several percentage points of GDP, which is more severe than in almost any other country.”
</blockquote>
<h2>U.S. Treasury Prices Plunge: Uncertain Federal Reserve Policy Path and Basis Arbitrage Trading Causing Volatility</h2>
As a traditional safe-haven asset, U.S. Treasury prices were sold off on Monday, drawing external attention.
Exante Data founder Jens Nordwig pointed out:
<blockquote>
“Typically, when the stock market falls, bonds can provide a buffer. But recently, bond yields have risen, and prices have fallen, occurring simultaneously with stock market turmoil.”
“These bonds should provide some insurance for investors, but they are not working now. This is quite unsettling, and a similar situation has occurred in the UK.”
</blockquote>
Even the shortest-term bonds—such as June interest rate contracts—have shown unusual activity. Nordwig noted that the June contracts recently experienced a pricing fluctuation of 50 basis points (half a percentage point), about 15 times its usual 2 to 3 basis points fluctuation
Sheets attributes this to investors reassessing expectations for the Federal Reserve:
<blockquote>
&#34;Tariff policies have created challenges for the Federal Reserve, driving up inflation and at least temporarily dragging down growth. The question is how the Federal Reserve will respond; I can make a compelling argument that it may raise interest rates or cut them within three to six months. All possibilities are on the table.&#34;
</blockquote>
Additionally, Sløk is closely monitoring the hedge fund sector, particularly the so-called &#34;U.S. Treasury basis arbitrage trades,&#34; which he believes may also be a manifestation of the unusual volatility in the bond market.
Wallstreetcn previously mentioned that hedge funds have long exploited the small price differences between U.S. Treasury spot and futures for arbitrage. However, to enhance yields, many hedge funds have employed high leverage, causing the total scale of such trades to balloon to concerning levels. Once market volatility increases, these high-leverage positions may be forced to liquidate, impacting other financial sectors

Unlike the usual situation where the US dollar typically strengthens during market turmoil, the US dollar index significantly weakened after the new tariff policy was implemented; on Monday, US stocks barely stopped falling, while US Treasuries faced substantial selling

- Following the implementation of new tariffs on April 2, investors withdrew from risk assets, leading to a significant decline in global stock markets and a drop in the U.S. dollar index by 1.6%.  
- Despite a stable downward trend in 10-year U.S. Treasury yields, they surged over 18 basis points on Monday, while 2-year yields rebounded sharply, indicating increased risk premiums and recession concerns.  
- The unusual behavior of the dollar and Treasury prices, typically safe havens, raises questions about future demand for U.S. assets amid changing trade rules and potential economic impacts.

Wallstreetcn

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Two major market anomalies worth noting: "The dollar followed the sharp decline of U.S. stocks last week," and "U.S. Treasuries were heavily sold on Monday despite no gains in U.S. stocks."