Treasuries Slide amid Japan Rout and Greenland Tiff

Meanwhile, concerns around Japan’s fiscal outlook sent yields on that nation’s 40-year debt rocketing above 4 percent—the most on record—in the Asian session. The selloff hit long-dated debt around the world, with most 30-year government yields rising as debt worries remain a pressure point across major economies.

“No one is doing a great deal to control fiscal deficits, and when it it all comes together with geopolitical concerns around Greenland and European demand for Treasuries, plus the Japanese selloff, yield curves need to be steeper to get the appropriate amount of risk premium,” said Dominic Konstam, head of macro strategy at Mizuho Securities USA LLC.

The roster of catalysts “reminds people of what happened in April,” when the Trump administration unveiled sweeping tariffs on dozens of U.S. trading partners, Konstam said. A violent selloff in U.S. financial markets ensued, driven by the perception that U.S. trade policies, coupled with Trump’s attacks on the Federal Reserve, could erode foreign demand for U.S. assets over time.

The latest spike in Treasury yields is sending the administration a message it’s unlikely to ignore, said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. The market response to April tariffs announcement prompted Trump to walk back some of his most severe threats, calming markets.

“Trump loves to weaponize uncertainty up to the point the markets respond negatively,” McIntyre said.

While the Danish pension fund tied its decision to unsustainable U.S. fiscal trends, rather than to the Greenland initiative, the European Union effectively suspended the ratification of a trade agreement reached with the United States last year following the threats against countries that oppose U.S. takeover of Greenland.

Other considerations for investors in U.S. government bonds Tuesday included the possibility of a U.S. Supreme Court ruling—which didn’t come to pass—on a legal challenge to the tariffs, which have raised revenue and marginally improved the U.S.’s fiscal trend. The next potential decision date is a month from today.

At the same time, the U.S. high court will hear arguments this week on Trump’s attempt to dismiss Fed Governor Lisa Cook, a case that is unfolding against the backdrop of rising concerns over central bank independence amid the president’s antipathy toward Chair Jerome Powell’s leadership and Justice Department subpoenas targeting the Fed. Trump is expected soon to name a successor to Powell, whose term ends in May.

‘True Accelerant’

The trans-Atlantic rift over Greenland has fueled debate about whether European countries will offload their holdings of U.S. bonds and stocks, potentially driving borrowing costs up and equities down given U.S. reliance on foreign capital.

“The Danish pension fund retort is an important gauge of sentiment but mathematically lost amidst a $30 trillion U.S. Treasury market,” said George Catrambone, head of fixed income at DWS Americas. “The true accelerant to the Treasury and dollar selloff seems to be Japan, and concern of repatriation from global markets to support higher inflation and JGB yields.”

The U.S. Treasuries selloff reflects “a combination of factors,” said Ian Lyngen, head of U.S. rates strategy at BMO. “The stubbornly narrow yield range in Treasuries has finally broken, and it’s done so in a convincingly bond-bearish fashion.”

A $13 billion sale of 20-year notes on Wednesday will test demand for longer-dated debt.

“The key new dynamic now is that the U.S. has become the source of uncertainty, not the safe haven from it,” said Andrew Ticehurst, senior rates strategist at Nomura Australia Ltd. in Sydney.

By one metric, long-dated Treasuries were set to cheapen the most in a day since May. The gap between 30-year yields and equivalent interest-rate swaps widened 3 bps, to 68 bps. Still, that’s below the levels seen following Liberation Day in April, when momentum to sell U.S. assets surged and the so-called swap spread widened to one percentage point.

During a press conference at the World Economic Forum in Davos, Treasury Secretary Scott Bessent urged calm and dismissed suggestions that Europe might forcefully retaliate by dumping Treasuries.

“The implications of the tariff threats over Greenland had yet to fully percolate through financial markets,” said Jim Reid, global head of macro research and thematic strategy at Deutsche Bank AG. “It’s worth keeping an eye on the demand for U.S. assets as a barometer for how aggressive the U.S. might be on this policy.”

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