It Was Never About Tariffs

Dear friends,

Introduction: The Market Just Got Punched in the Face... Then Rallied Like a Champ

We just lived through one of the wildest 72-hour stretches I’ve ever seen in the stock market.

The S&P 500 dropped 8 percent in three days. Treasury yields surged like a rocket. Panic was in the air.

Then, just as quickly, everything reversed.

Trump announced a 90-day pause on tariffs for nearly every country except China, and the market exploded higher. The Nasdaq had its third-best day ever. The S&P 500 posted its ninth-best day in history.

This wasn’t a normal move. You don’t get price action like this unless something breaks.

And I believe something did break. Not just in the stock market, but in the bond market too. I’ll explain exactly what I think happened, why this isn’t over yet, and what it means for your wealth-building plan.

Because while the headlines will focus on the drama, the truth is this could open up some of the best buying opportunities we’ve seen in years.

Let’s break it all down.

If there’s one number I’ve been watching closely, it’s the 10-Year Treasury yield.
This is the interest rate the U.S. government pays to borrow money for ten years. And while it might sound boring, the 10-Year is the backbone of the entire financial system.

Most mortgage rates are tied to it. When the 10-Year rises, the cost to borrow for a home shoots up. A year ago, a 30-year mortgage might have cost you 4 percent. Now it’s hovering above 7. That small difference adds hundreds of dollars a month to a typical payment and knocks millions of people out of the housing market.

But it’s not just homebuyers who care.

Warren Buffett has said for decades that he uses the 10-Year yield to value businesses. When I’m deciding whether to invest in a stock, I think the same way. You have to compare it to the risk-free alternative. If a government bond pays you 5 percent with no risk, then any business you invest in has to beat that return and also justify the risk of owning it.

That’s where things get dangerous.

When the 10-Year jumps, investors demand bigger returns from everything else, especially stocks. And that pulls valuations down fast.

Now this is where things get interesting. And in my opinion, this is what’s really going on.

The administration knows it has to refinance 9.7 trillion dollars in debt by June. That’s a massive wall of borrowing, and the 10-Year is simply too high. If they try to roll over that debt at current rates, the interest payments become completely unaffordable.

So over the past month, they’ve been putting maximum pressure on the 10-Year to bring it down. And it was working.

Yields had been sliding. The bond market was finally calming down.
Until everything reversed in a matter of hours.

Then, last night, things broke.

Between 7 PM and midnight, the 10-Year surged another 25 basis points.
The 30-Year jumped above 5 percent. At the same time, stock futures were plunging.

These are not normal moves. Not even close.

This kind of price action only shows up when something deep in the financial system starts to snap.

SINCE IT BROKE, THIS CAUSED THE ADMINSTRATION TO PANIC!

So why did it break?

Let’s talk about the trade nobody outside of hedge funds usually talks about.
The one that could be causing all of this.

What Broke in the Bond Market?

It’s called the basis trade.

It’s one of those trades that only shows up in textbooks and hedge fund risk models, but behind the scenes, it has grown into an $800 billion monster. And now, it’s under serious pressure.

The basic idea is simple.

Hedge funds look for small price differences between Treasury bonds and Treasury futures. These are supposed to move almost identically. So if there’s a small gap, a trader will buy one and short the other, locking in a tiny arbitrage.

But here’s the catch.
They use massive leverage to make it worth their time—sometimes 50 to 100 times leverage.

When markets are calm, this trade works beautifully. But when volatility spikes, like it just did, it can unwind violently. That’s what I think we’re seeing right now.

Last night’s move wasn’t just some bond traders getting jittery. It looked like a major basis trade blowing up. The hedge funds on the wrong side of the trade were forced to sell. The broker-dealers backing them were forced to absorb losses. And that created a wave of selling pressure across the Treasury market.

The worst part?
The basis trade makes up nearly 40 percent of the $2 trillion in outstanding leverage tied up in prime brokerages.

When it starts to unravel, it doesn’t just hit a few hedge funds.
It ripples through the whole system.

And just like in 2020, when the Fed had to step in and buy $100 billion in Treasuries a day to stabilize the market, we might be heading down that path again.

So What Does It Mean for You?

Even though markets soared today, I don’t think this is over.

The administration hit pause on tariffs for nearly every country—except China. That tells me one thing: they’re setting up for a one-on-one showdown.

And it’s going to get messy.

Markets hate uncertainty, and there’s a lot more of it coming. Bond volatility, geopolitical tensions, a fragile debt market, and now an aggressive stance against the world’s second-largest economy. That’s not the recipe for smooth sailing.

But here’s the part I want you to really take in.

If you’re investing for the long term, none of this changes your plan.

READ THIS: The single greatest advantage you have over Wall Street is your ability to think in decades, not days.

Wall Street has to respond to every headline. You don’t.

You get to sit patiently, hold quality businesses, and use market chaos to your advantage. That’s how real wealth is built.

I’m not saying ignore the noise. I’m saying learn from it. Use it.

Every volatile stretch brings opportunity. Stocks don’t go on sale during calm markets. They go on sale when the world feels like it’s falling apart.

And that’s exactly when the best investors step in quietly and start buying.

So stay focused. Stay steady. Stay long.

The volatility is just getting started—but so are the deals.

Conclusion

This week was a reminder of just how fast things can change.

One day, the market is crashing. The next, it’s having one of its best days in history. Bond yields are spiking, then collapsing. Headlines are everywhere.

But through all of it, one thing stays true: your edge is time.

You don’t need to predict the next tariff decision. You don’t need to understand every nuance of the bond market. But you do need to stay committed. Stay curious. And stay ready for the moments when the market gives you a gift.

Because if you can keep your head while everyone else is losing theirs, you’re going to win over the long run.

I’ll be watching this situation closely—and if anything changes, you’ll hear it from me first.

But for now, zoom out, take a breath, and keep building.

Cheers!

Matt Allen

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