The bombastic Democratic operative James Carville once said that if reincarnation is real, he wants to come back not as a president or pope, but as the bond market. The bond market, he said, “can intimidate everybody.”

The last leader to learn that lesson the hard way was Great Britain’s Liz Truss, whose 50-day tenure as Prime Minister in 2022 was the shortest in modern British history. It was her ill-fated tussles with the U.K’s bond market that eventually did her in.

President Trump was uncharacteristically forthcoming Wednesday afternoon when asked by reporters what made him change his mind about his plan to impose global tariffs on America’s trading partners. He avoided a direct answer when asked, but acknowledged that he was “watching” the bond market which had plummeted overnight.

“The bond market is very tricky,” he said. “I was watching it. But if you look at it now, it’s beautiful. The bond market right now is beautiful. I saw last night where people were getting a little queasy.”

Wednesday’s auction of 10-year treasuries was viewed as a make-or-break moment for the bond market, which had dramatically sold off overnight in anticipation of Mr. Trump’s broad tariff scheme going into effect. To the surprise and relief of Wall Street, the auction posted solid results, relieving fears that investors had lost confidence in the American bond market. 

“This was an A+ auction today that should sideline the concerns of systemic risk in the system,” the managing partner of Harris Financial Group, Jamie Cox, told Reuters. 

The selloff in Treasuries, which are debt securities issued by the Treasury Department to fund government spending, sent shockwaves through Wall Street and stoked fears that the long-running reputation of Treasuries as safe haven assets may be faltering. 

“This is a fire sale of Treasuries,” a portfolio manager at Blue Edge Advisors hedge fund, Calvin Yeoh, told Bloomberg Wednesday morning. “I haven’t seen moves or volatility of this size since the chaos of the pandemic in 2020.” 

As Treasuries dropped overnight on Wednesday, yields — the investor return on Treasuries — rose, with longer term yields surging to the highest levels since 2020. Higher yields result in higher borrowing costs, which can affect mortgages, corporate loans, and other forms of debt. 

The market scenario of a down equity market coupled with a Treasury selloff defied the expectation that investors spooked by market volatility and in search of trustworthy and stable assets will turn to U.S. bonds. The equity market plummeted last week after Mr. Trump unveiled his wide-reaching reciprocal tariff plan, with American-listed stocks declining by a total of $7.7 trillion in market value. 

On Wednesday morning, a former treasury secretary, Lawrence Summers, reckoned that the “highly unusual” market trend “suggests a generalized aversion to US assets in global financial markets,” he wrote on X. Mr. Summers likened the global financial market’s approach to American debt to the typical treatment of a “problematic emerging market.”

“This could set off all kinds of vicious spirals, given government debts and deficits and dependence on foreign purchasers,” Mr. Summers added. 

Some analysts attributed the Treasury sell-off to hedge funds exploiting the difference between the prices of a Treasury security and its futures contract, a leverage strategy known as a “basis trade.” Others fretted that foreign investors — who own about a third of the U.S. Treasury market — were selling American bonds to retaliate against Mr. Trump’s tariff scheme. 

Venture capitalist Chamath Palihapitiya, a major donor to Mr. Trump’s most recent presidential campaign, relayed rumors of China “dumping” treasuries “to try and move rates to shift narrative and make our upcoming Treasury auctions more expensive,” he shared on X. 

China, the second largest-holder of American debt, was initially dealt a 104 percent tariff on all imports to America. On Wednesday, the 47th president announced that he would be upping that rate to 125 percent due to Beijing’s “lack of respect” for “the World’s Markets.”

All other countries, however, were granted a 90-day pause during which they would return to the baseline rate of 10 percent, with the exception of Canada and Mexico, which will remain at 25 percent. 

While the latest development is likely to — temporarily perhaps — lessen the likelihood of other countries shedding their Treasuries, the president’s singling out of China may leave the door open for the People’s Bank to retaliate. 

However, analysts doubt that China would pursue a full selling spree of American debt given how it would negatively impact China in return. The chief economist at the Institute for International Finance, Marcello Estevão, described such a move as “self-defeating” given that it would “very much hurt China,” the Telegraph reported. 

The chief Asia economist at Capital Economics, Mark Williams, similarly mused that “China dumping treasuries would be the equivalent of lobbing a hand grenade at someone sitting across from you in a room.”