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From the archiveCase study · Apr 20255 min read

Liberation Day and the 'sell America' trade

Sweeping US tariffs knocked 10.5% off the S&P 500 in two days; then Treasuries and the dollar fell too, until a 90-day pause on 9 April sparked a 9.5% one-day rally.

EquitiesRatesFXJuniorTrader desk · 4 sources

  • Sweeping US tariffs announced on 2 April 2025 knocked 10.5% off the S&P 500 in two days, its worst week since 2020, and China hit back with a 34% tariff.

  • Then Treasuries and the dollar fell too: the 10-year yield rose about 50 in a week, the most since 2001, as investors priced risk in US policy itself.

  • On 9 April the higher tariffs were paused for 90 days for every country except China, and the S&P 500 jumped 9.5%, its biggest one-day gain since 2008.

The trader’s angle

When a country’s ‘safe’ assets fall alongside its stocks, the market is pricing the policymaker, and a disorderly bond market is what policymakers find hardest to ignore.

S&P 500, 3–4 Apr

-10.5%

down-4.84%, then -5.97%

The fifth-steepest two-day fall since 1950 and the index's worst week since the Covid crash of 2020.

10-year Treasury yield

4.49%

up+50bp in a week

From about 4.0% on 4 April to about 4.5% on 11 April: the biggest weekly rise since 2001, during an equity rout.

S&P 500, 9 Apr

+9.5%

upafter the 90-day pause

Its biggest one-day gain since 2008, after the higher tariffs were paused for every country except China.

Dollar index (DXY), 11 Apr

below 100

The dollar fell as US stocks and bonds slumped, while gold hit record highs above $3,200 an ounce.

When stocks fall on fears of slower growth, investors usually buy US . They are the world’s deepest, most trusted , and slower growth makes Fed rate cuts more likely. Bond prices rise and fall, cushioning a portfolio that holds both. The dollar usually firms too.

That pattern is a tendency, not a law. If investors start to doubt a country’s policies, they can sell its stocks, bonds and currency at the same time. That combination is more familiar in , which is why seeing it in the US in April 2025 was so unsettling.

What happened

On Wednesday 2 April 2025, which President Trump called ‘Liberation Day’, the White House declared a national emergency over trade deficits. It announced a 10% , a tax on imports, on almost all goods from 5 April. Higher ‘reciprocal’ rates on dozens of countries were to follow from 9 April, including 34% on China and 20% on the EU.

The S&P 500 fell 10.5% in two days, its worst week since 2020, and China hit back with a 34% tariff on all US goods. Then something unusual happened. Instead of rallying as a safe haven, sold off: the 10-year yield rose from about 4.0% to about 4.5% in a week, its biggest weekly rise since 2001, and the fell.

Why it happened

Several forces hit the bond market at once, and analysts still argue about the mix. One was : hedge funds running the , long Treasuries and short futures and financed in , were forced to cut positions as volatility jumped. Another was suspected selling by foreign investors, who own a large share of the Treasury market. A third was a higher : tariffs threatened higher inflation and bigger deficits, so investors wanted more compensation for lending long.

Underneath all three was a question of trust. When the shock starts in Washington, the usual logic weakens. Selling US stocks, bonds and the dollar together, the ‘sell America’ trade, was investors charging a on US policy itself.

How it ripples through markets

How a tariff shock hit the safe havens

  1. 1

    Sweeping tariffs announced

    downS&P 500

    A 10% baseline plus much higher 'reciprocal' rates mean dearer imports and weaker trade, raising fears of slower growth and higher inflation at the same time; stocks slump.

  2. 2

    China retaliates

    A 34% tariff on all US goods turns a negotiation into a trade war.

  3. 3

    Leveraged bond trades unwind

    up10y Treasury yield

    As volatility jumps, lenders demand more margin, forcing hedge funds to cut leveraged Treasury positions such as the basis trade; their selling pushes prices down and yields up.

  4. 4

    'Sell America'

    downDollar index

    Stocks, bonds and the dollar fall together as investors charge a premium for US policy risk; gold hits records.

  5. 5

    The White House pauses

    upS&P 500

    With long-dated yields surging, on 9 April the White House pauses the higher tariffs for 90 days for every country except China, and stocks rebound.

Why it mattered for traders

This was a correlation break. Usually bonds rally when stocks fall, so a portfolio holding both is cushioned. In April 2025 stocks, Treasuries and the dollar fell together, and the cushion vanished exactly when it was needed. Gold, not Treasuries, became the refuge.

It also revealed the White House’s . Falling stocks alone didn’t stop the tariffs; a disorderly bond market did. On 9 April, with long-dated yields surging, President Trump paused the higher rates for 90 days for every country except China, and acknowledged he had been watching the bond market. The bond market made them blink.

What happened next

The pause sent the S&P 500 up 9.5% in a day, its biggest gain since 2008. But the fight with China escalated: US tariffs on Chinese goods rose to 145% and China’s on US goods to 125%. Treasuries kept selling off until the end of that week, the dollar index fell below 100 and gold set records above $3,200 an ounce.

Tensions then eased. On 12 May, after talks in Geneva, the US and China agreed a 90-day truce: the US cut its tariffs on Chinese goods to 30%, and China cut its own to 10%. The S&P 500 was back at a record high by late June. But the episode left a mark: investors had watched the dollar and Treasuries fail as hedges in a crisis made in the US.

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Sources

An original summary written from the sources above. Figures are rounded; follow the links for the full record.

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