We all knew tariffs were coming … but not like this. While the S&P 500 and Nasdaq both ended up close to flat in April, their performance masks what was actually the most volatile month since March 2020. On April 2, 2025 — aka “Liberation Day” — US stock markets started dropping, falling almost 14% in just two days. Tariffs were announced at significantly higher rates than most had anticipated, only to be walked back a week later on April 9, 2025 with a 90-day pause for all countries except China. Stock markets have since recovered substantial ground on expectations that tariffs will ultimately be negotiated lower.

But stocks weren't the only asset class experiencing turbulence. Bonds took center stage as the 10-year Treasury yield spiked from 4% to 4.5% over the first two days after tariffs were announced. Half a percentage point might not seem dramatic, but in the bond world, it represents a seismic shift. A multitude of explanations have circulated for this spike in yields, but the underlying question investors are grappling with is fundamental: Are bonds safe anymore?

Let's examine why this time was different, explore the potential causes, remaining risks, and what this means for your portfolio.

When Safe Havens No Longer Feel Safe

Typically during periods of economic stress, bonds rally. This happens for two key reasons: the US has historically been viewed as a safe haven for global investors, and when the economy faces challenges, investors expect the Federal Reserve to step in by lowering interest rates — which leads to higher bond prices — to stimulate the economy.

In April 2025, markets broke this pattern. Bonds fell in value while stocks also declined, and surprisingly, the US dollar weakened simultaneously. This represents another departure from conventional market behavior — normally when US interest rates rise, foreign investors rush in to capture higher yields, strengthening the dollar. The synchronous decline of both bonds and the dollar during April is what has investors questioning whether the US is still a safe haven.

Behind the Bond Rout

Market analysts have proposed several explanations for the unusual bond market behavior. Some point to short-term technical factors — hedge funds and other market participants needed to sell bonds quickly to raise cash for liquidity demands. Others highlight macroeconomic concerns, including fears of higher inflation triggered by tariffs or anxiety about rising federal deficits.

But the most intriguing — and potentially consequential — theory centers around a fundamental shift in how foreign governments and investors view the US. While concrete evidence remains elusive, speculation has emerged that China might have been selling US Treasuries in response to the targeted tariffs. This possibility has rattled investors, though it's worth noting that China currently holds just 2.2% of outstanding US Treasuries — suggesting any such actions would likely have a limited longer-term impact.

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There's also a deeper structural consideration at play. A significant portion of foreign demand for US Treasuries stems from America's global trade patterns — countries accumulate dollars through exports to the US, which they then invest in Treasury securities. If the administration's goal is to eliminate trade deficits entirely, this would fundamentally reduce foreign buyers' need for US Treasuries. However, markets have recovered since the 90-day tariff pause announcement with 10-year treasury yields back down to 4.17%, suggesting investors don't believe this zero-deficit scenario will fully materialize.

The Resilience of Fixed Income

Despite April's volatility, the short answer to our central question is, “yes, bonds remain safe” … here's why:

1. Remember why you own bonds in the first place. If generating income is one of your goals, bonds continue to offer relatively attractive yields. If capital preservation and portfolio diversification are priorities, bonds have still delivered year-to-date, with the aggregate bond market up 3.2% while the S&P 500 is down 4.9%.
2. Bond volatility differs significantly from stock volatility in magnitude. While bonds declined during early April's market stress, losses were confined to low single digits, compared to stocks which plummeted over 14%.
3. While this episode felt unprecedented, we've seen similar temporary disruptions before. During the initial COVID selloff in March 2020, Treasuries also briefly declined alongside stocks before rallying and providing diversification benefits. 

As we navigate the remainder of 2025, geopolitical tensions and trade policy will likely continue influencing market dynamics. However, the fundamental role of high-quality bonds — providing income, dampening portfolio volatility, and offering a counterbalance to equity risk — remains intact despite April's brief deviation from historical patterns.

Ultimately, this episode reminds us that markets occasionally break from expected behavior in the short term, but well-constructed portfolios built around long-term principles tend to weather these storms successfully.