The US bond sell off is causing high anxiety so how can investors pivot, what does it mean for Europe and how are emerging markets managers positioned as Asia takes the brunt of Trump's tariff measures.
Among today's (9 April) industry reactions, Charles Younes, deputy chief investment officer at FE fundinfo said: “We recently moved from an Overweight to an Underweight position on US Equities, and the latest market developments have reinforced that decision. The equity sell-off has now extended into the bond market, with US Treasuries selling off overnight and the US Dollar also under pressure.
“US assets — long viewed as global safe havens — are now being repriced as sentiment deteriorates. This is not about fundamentals, which remain broadly intact, but about rising uncertainty and diminished visibility. Investors are increasingly demanding a premium to hold US-based assets.
“What we’re witnessing may mark the beginning of a broader reallocation away from US exceptionalism, as capital rotates globally. In this environment, we believe a more defensive posture is not only prudent but necessary.
"There is also a clear risk that this repricing spreads to Europe. In a globally connected market, shifts in sentiment rarely stay contained. For Europe, the uncertainty is compounded by geopolitical risks, including the unresolved question of future trade relations with the Trump administration.
"At this stage, it’s unclear whether Europe will face renewed trade tensions or secure a deal, and that lack of clarity could weigh on sentiment and capital flows across the region.”
Paul Diggle, chief economist at Aberdeen said: “US bond yields have started to move sharply higher despite equity market weakness, and the curve has steepened significantly. Falling equities and dollar, and rising yields, represent a pernicious combination. In any other country, this would be called a sovereign crisis.
This is particularly striking because the US treasury market is meant to be the risk-free asset that performs well when equity markets are falling. Instead, bond yields appear to be rising for several reasons.
First, uncertainty around US policy means investors require higher term premia (the compensation that investors require for lending for longer periods, which takes the form of higher yields). Indeed, the move in nominal yields – the interest rate before inflation is taken into account – seems to be an increase in term premia rather than inflation compensation, with real yields moving up despite the weaker growth outlook.
Second, the US may be becoming a structurally less attractive place to invest over the long run, with tariffs reducing long-run potential growth, meaning portfolios could well hold fewer US assets in the future.
Policy unpredictability and lower growth may also lead to greater concern about fiscal sustainability, with the US less able (and, if certain parts of the Miran plan are implemented, less willing) to service its debt.
Third, because tariffs represent a stagflationary shock, they create a difficult trade-off for monetary policy. There is a risk that either the Fed doesn’t ease as aggressively as priced by markets, or that it allows an inflation overshoot as it focuses on growth.
Fourth, Asian investors in particular seem to be selling US assets. In extremis, this could evolve into the dumping of treasuries by China that has long been speculated about. However, such a move would cause the Chinese currency to appreciate, which doesn’t seem to be policymakers preference for now.
It is possible that bond market weakness will prove more consequential in shifting the administration’s approach. So far, the pain tolerance for equity weakness has been high. But the equity market vigilantes were arguably easier to ignore when bond yields were falling.”
Robert Gilhooly, senior emerging markets economist at Aberdeen, said of China: “Tariff tit-for-tat between the US and China will almost certainly spur further policy easing by China – such as bond issuance brought forward and expanded – but it is unlikely to be enough to fully offset the shock.
"Higher tariffs on other Asian economies reduce the ability to circumvent tariffs by re-routing goods via third countries, while the scale and breadth of tariffs across both EMs and DMs implies a broad-based global growth slowdown.
For now, we are pencilling in another 1.25% hit to the level of Chinese GDP, which pushes down 2025 GDP growth to 4.2%.
"Tomorrow’s CPI print will be important in judging underlying inflation going into the trade war, but the growth shock combined with the oil price fall will likely keep CPI inflation and the GDP deflator in negative territory.
"The authorities continue to lean against FX depreciation pressure, with the latest reporting suggesting that state-owned banks have been asked to reduce their USD purchases. But, at the same time, the FX fix has been allowed to push higher, while the CNH/USD exchange rate briefly hit a record high of over 7.4 yesterday.”
Fitch Ratings said: "EMEA insurers, although not directly affected by US tariffs, are significantly exposed to second-order effects.
"The tariffs, together with resulting geopolitical tensions and countermeasures, will put further pressure on global growth and have led to volatility in financial markets, which will pressure insurers’ investment and underwriting results.
"The outlook for insurers’ investment returns is highly uncertain. Falling equity prices, widening credit spreads and eventual rising defaults may cause mark-to-market losses, depleting generally strong solvency ratios. However, European government bond yields are still higher than at end-2024, which is broadly positive for most insurers as profitability typically benefits from premiums being invested at higher yields."
US president Trump’s newly announced tariffs have far exceeded most expectations, and for many regions, particularly emerging markets, the scale of the hikes was much larger than anticipated.
Asian countries, in particular, have been disproportionately affected. China, one of the hardest-hit countries, will see a total tariff rate of 54% on Chinese imports. This includes imports from Hong Kong and Macau. In the continent, China was closely followed by Vietnam, Taiwan, Indonesia, and India.
Lena Tsymbaluk, associate director, equity strategies at Morningstar said: “Many emerging market portfolio managers view the situation as highly fluid, with significant uncertainty surrounding the outcome. Investors are closely monitoring for any potential bilateral negotiations between the Trump administration and the countries affected by the tariffs.
"Several options remain on the table, including direct retaliation – for example, China has already reciprocated – or the implementation of fiscal stimulus measures to support exporters. China will be the key one to keep an eye on.
“Even before the latest announcement, the risks associated with tariffs on China had been on investors' radar for some time, leading several active managers to adjust their portfolios away from export-dependent sectors towards sectors more reliant on domestic demand, such as internet services, household goods and services. These sectors are considered less vulnerable to tariffs.”
What have emerging markets managers said?
Morningstar also quoted a number of managers in light of the market turmoil:
The Gold-rated GQG Partners Emerging Markets fund, managed by Rajiv Jain, anticipates a slowdown in economic growth due to the impact of Trump's new tariffs and trade policies. As a result, Jain has reduced exposure to high-growth stocks with relatively high valuations and is opting for companies with more defensive growth profiles and greater earnings certainty. While still focused on growth, Jain’s strategy emphasizes defensive growth. He believes China will be significantly affected by U.S. tariffs, which will impact trade dynamics, fiscal deficits, and overall economic growth. Consequently, the fund maintains a significant underweight in China (11.5% versus 30% in the Morningstar EM Target Market Exposure Index).
Meanwhile, at Silver-rated Polar Capital Emerging Markets Stars, manager Jorry Nøddekær maintains an underweight position in China (26% versus 30%) and is highly selective with his exposure. He sees growth opportunities in specific sectors, particularly in China’s role in the emerging Multipolar World as a producer of consumer and capital goods. The fund also holds an overweight position in Latin America, as Nøddekær believes the region will experience minimal impact from Trump’s tariff policies.
The Silver-rated JPM Emerging Markets team believes that now is not the time for hasty decisions, but they will reassess their portfolio if tariffs have a significant impact. The portfolio management team expects inflation in the US, mainly due to domestic companies being given the opportunity to match import prices. In their view, this could lead to higher inflation, slower growth, and potentially higher interest rates. They continue to focus on companies with sustainable competitive advantages, consistent cash flow, and strong management – a strategy they are confident is well-suited to current market conditions.
Nick Price at the Silver-rated Fidelity Emerging Markets fund has concentrated the China exposure in consumer-facing sectors (sportswear, internet, and white goods), positioning the portfolio to benefit from potential further stimulus measures.
The fund has adopted a modest exposure to exporters, with an active underweight in the manufacturing sector (autos), where companies are more exposed to increased tariffs. Additionally, the fund is overweight in Latin America, focusing on domestic businesses and consumer companies in Mexico, as well as domestic banks and fintech in Brazil, sectors that are largely insulated from tariff impacts.
