Donald Trump has just announced a 90-day postponement on tariff enforcement for most countries, with one major exception: China—which was hit with a record-breaking 125% tariff on April 9, 2025.

After several days of taking a tough public stance and vowing to impose sweeping tariffs to bring manufacturing back to the U.S., this sudden policy shift has come as a surprise to many observers.

So, what triggered this unexpected change?

U.S. government bonds have long been considered the safest asset class in the world—a cornerstone of global financial trust.
But just hours after China retaliated with its own tariffs and dumped a significant amount of U.S. Treasuries, the market felt the shock.

While stock market volatility is something Trump has historically brushed off, the bond market is a different story.

The 10-year U.S. Treasury yield (10Y) surged past 4.5%—a dangerously high level given current global economic conditions.

Without Intervention, The Investment System on the Brink

In the financial world, one of the most common strategies used by hedge funds is known as the Basis Trade.

Here’s a simplified explanation:

Investment funds borrow money to buy real U.S. government bonds, then sell futures contracts—which are derivatives based on those same bonds.
The goal is to profit from the price difference between the bond and its future.

Because the price gap is very small, funds use extremely high leverage—borrowing up to 20 times their actual capital.

What went wrong?

When U.S. bond prices dropped rapidly (partly due to China’s large-scale bond sell-off), this model racked up massive losses within hours.

As a result:

• Funds were hit with margin calls

• They were forced to sell off more bonds, causing prices to fall even further

• This drove yields even higher, triggering a self-reinforcing sell-off

A domino effect began to unfold.

If left unchecked, this could shake the U.S. financial system

• The U.S. government would face higher borrowing costs

• American businesses would struggle to get loans, and production/investment costs would surge

• The stock market would decline, as investor risk aversion grows

• The risk of a technical financial crisis becomes very real

  Without swift intervention, Trump’s "global tariff campaign" could ultimately backfire on the U.S. economy itself.

One of the key reasons behind President Trump’s sudden tariff pause is the strong reaction from financial markets—especially the bond market.

The U.S. needs to keep capital flowing, and create breathing room for itself and global partners to assess and adapt policies.

In an interview with Fox News, President Trump stated:

“Well, I thought that people were jumping a little bit out of line” he told reporters at the White House.

“They were getting yippy, you know, they were getting a little bit yippy, a little bit afraid, unlike these champions, because we have a big job to do.”

“No other president would have done what I did. No other president,” he said. “And it had to be done.”

He later added: “You have to have flexibility” in policies.

Watch the full video here:

Uncertainty Still Looms

Senator Chuck Schumer (Democrat) commented on the situation, saying:

“A 90-day pause means they don't know what's gonna happen at the end of the 90 days. A 10% is still going to hurt our families. These tariffs and this trade war are absurd. They're going to increase costs for everyday goods, from food to housing to anything you buy for your family or your children. It's going to fuel inflation.”

Compiled, analyzed, and shared by: Minh Truong

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