A historic week has passed, and both the US stock market and Bitcoin have ultimately risen, but the market has completely changed!

U.S. stocks returned to an upward trend on Friday, suggesting a recovery in market risk appetite. However, in reality, investors have begun to question the safety of U.S. assets, especially with the dramatic fluctuations in U.S. Treasury bonds, which have once again cast a shadow of fear over Wall Street regarding a financial crisis.

In the past week, the yield on the U.S. 10-year Treasury bond experienced its largest weekly jump in over 20 years, while U.S. stocks plummeted and then surged. On the surface, the S&P 500 index rose over 5% for the week, Treasury yields returned to February levels, and Bitcoin closed higher, seemingly everything was normal.

However, what is unsettling is that the simultaneous decline of U.S. stocks, Treasury bonds, and the dollar this week is a typical characteristic of emerging markets, rather than the performance of the world's safest assets. Particularly, the significant volatility in U.S. long-term bonds this week suggests that a liquidity crisis may be imminent, leading investors to question the wisdom of holding U.S. assets. UBS Group AG's chief strategist, Bhanu Baweja, stated:

This is terrifying. We are redefining the global risk-free rate, and if the global risk-free rate fluctuates, it will disrupt all markets.

Historically Rare, U.S. Asset Volatility Exceeds Emerging Markets and Bitcoin

Trump's recent tariff policies have not only undermined confidence in the U.S. economy but also shaken investors' trust in U.S. policy direction and dollar assets. Even by Wall Street's long historical standards, this week has been a brutal trading week, with U.S. stocks resembling a roller coaster, and the movements of Treasury bonds and the dollar suggesting that America's safe-haven status may be at risk:

On Monday, U.S. stocks experienced a 15-minute pulse shock due to so-called tariff news, with the Nasdaq briefly surging 10% from a low, while Treasury bonds plummeted.

On Tuesday, news of no tariff exemptions crushed hopes for a rebound in U.S. stocks, the Dow Jones Industrial Average plummeted over 2000 points during the day, and the S&P erased more than 4% of its gains to turn negative, while the U.S. Treasury market saw a significant deleveraging drop.

On Wednesday, the U.S. temporarily suspended some tariffs, and the three major U.S. stock indices at least closed up nearly 8%, with the S&P recording its largest gain since 2008, and trading volume in U.S. stocks hitting a historic high of 30 billion shares. The yield on the 10-year Treasury bond surged and then retreated.

On Thursday, global investors fled U.S. assets, leading to a triple whammy for U.S. stocks, bonds, and the dollar, with the Nasdaq down over 4%, the dollar experiencing its largest daily drop in two years, and gold hitting new highs.

On Friday, the Federal Reserve hinted at possible intervention, leading to a rebound in U.S. stocks, but the decline in Treasury bonds and the dollar warns that America's safe-haven status may be at risk.

Andrea DiCenso, an investment manager at Loomis, Sayles & Company, stated: "Is the U.S. market starting to behave like an emerging market? Undoubtedly, yes, that is exactly what we are seeing."

According to data, the volatility of U.S. stock ETFs has even surpassed that of funds tracking emerging markets, and at one point was higher than Bitcoin. This situation has rarely occurred, except during the pandemic, the crisis in August last year, and the period of aggressive interest rate hikes by the Federal Reserve.

Neil Dutta from Renaissance Capital bluntly stated in an email to clients: "The S&P 500 is trading like a cryptocurrency, which may not be a good thing."

Volatile Risk-Free Rates Signal a Repetition of Financial Crisis

When the long-term bond market experiences extreme volatility, large spreads, and low liquidity, it affects all other capital markets, especially putting upward pressure on interest rates and U.S. government debt, which could potentially evolve into a financial crisis over the long term.

The volatility of U.S. Treasuries surged this week, with the 20-year Treasury volatility quickly catching up to the VIX volatility of U.S. stocks.

Although the decline in 30-year U.S. Treasuries this week did not continue from last week, showing a broadening trend, the bid-ask spread of the benchmark 30-year bond has shown some cracks—this is a sign of long-term liquidity decline in the U.S. Treasury yield curve. This week, the spread nearly reached a full basis point, a level not seen since the beginning of 2023.

Confidence in the quality of U.S. stocks, fixed income, and currency assets outside the United States has been damaged. Nathan Thooft from Fund Experience stated, "The question is, is this a temporary shock or a long-term shift? We still believe it is the former. But this does not deny that some large asset owners are looking for alternatives and diversification in safe-haven assets."

Analyst Ed Al-Hussainy pointedly remarked:

I am actually not worried about a recession; I am worried about a financial crisis.

Funds Flowing into Safe-Haven Assets, Wall Street Calls for Fed Intervention

The shadow of a financial crisis has led global investors to withdraw from the U.S. and pour into European bond markets, gold, yen, and Swiss francs as safe-haven assets to avoid broader turmoil German bond yields remained largely unchanged this week, while the yield on the 10-year U.S. Treasury surged by more than 50 basis points, marking the largest gap since 1989 where U.S. Treasury yields lagged behind German bonds. In contrast, the U.S. dollar index fell below the psychological level of 100, recording the most severe two-week decline since November 2022, while the euro appreciated significantly against the dollar, with this week's appreciation exceeding that of the yen.

Extreme volatility has placed unprecedented psychological pressure on investors and traders, leading to calls on Wall Street for Federal Reserve intervention. On Friday, JP Morgan CEO Jamie Dimon stated that he expects "chaos" in the U.S. Treasury market.

"When you have many volatile markets, wide trading spreads in Treasury bonds, and low liquidity, it affects all other capital markets," Dimon said during the earnings call, "This is the reason the Federal Reserve should intervene, not to help the banks."

Fortunately, Federal Reserve policymaker Susan Collins stated on Friday that if market conditions become chaotic, the Federal Reserve "will absolutely be ready" to help stabilize financial markets. However, she emphasized:

The market continues to function well, and we do not see overall liquidity concerns