If inflation persists—possibly driven by tariffs—it could force yields higher. Trump’s efforts to bring manufacturing back to the U.S. will raise production costs, especially compared to China or Vietnam. In the interim, tariffs mean higher consumer prices. While inflation fell to 2.4% in March, that was before the tariffs kicked in. A reacceleration is possible.

If inflation rises amid economic slowdown, we could be headed for stagflation—a toxic mix where few asset classes perform well. Bonds would suffer, and growth stocks may struggle too.

This is the worst-case scenario. A selloff in Treasuries could signal that investors no longer see them as safe, given America’s debt load. U.S. Treasuries total $51 trillion—40% of the global bond market. If the U.S. faces a credit downgrade or, worse, a default, it would trigger a global financial shock. There is currently no viable alternative with the scale to replace Treasuries.

This scenario would be catastrophic. I sincerely hope it's the first reason driving yields.

The macro picture remains bleak. The tariff pause is just 90 days—things could still deteriorate. And the U.S.–China relationship is worsening. An armed conflict is the last thing markets want.

Of course, geopolitics is unpredictable. A peaceful resolution and trade deal would lift markets dramatically.