Tariff War Shock and the Convenience Yield of US Treasuries — A Hedging Perspective

Viral Acharya and Toomas Laarits

No 20985, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We explain how the “Tariff War†shock of April 2025 affected the safe-asset status of US Treasuries. Convenience yield erosion for long bonds is consistent with a reduction in the hedging property, reflected in a rising stock-bond covariance. Decomposing the Treasury yield into riskfree rate, credit spread, and convenience yield components reveals that covariance due to the convenience yield component increased for long bonds. The short end of the Treasury curve, however, continued to exhibit the safe-asset hedging property. These effects are consistent with a withdrawal of safe-asset investors from long bonds and a rotation towards shorter-term Treasuries and gold.

JEL-codes: E4 E5 F3 G11 G12 G15 (search for similar items in EconPapers)
Date: 2026-01
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