As tariff-driven fears over supply chain disruption escalate, the bond market has been highly volatile throughout April. Yet, Vanguard has found pockets of opportunity. According to Rebecca Venter, Senior Fixed Income Manager at Vanguard, there has been notable demand for not only ultra-short-term Treasuries but also medium-term maturities.
Vanguard’s 0-3 Month Treasury Bill ETF (VBIL), which launched in February and already manages nearly $1 billion in assets, posted a 0.2% total return so far in April. Venter said in an interview Monday that the month's bond flows reflect a clear "flight to safety" amid tariff-related uncertainty.
She warned that tariffs represent a "double-edged sword," risking both higher inflation and weaker growth, and noted that the fiscal outlook could deteriorate as a result.
Investors heavily exposed to long-term Treasuries are experiencing greater volatility compared to those holding shorter-dated securities. Even before Trump's sweeping tariff announcement on April 2, traders were already concerned that large U.S. deficits would push up long-term yields — and higher yields depress bond prices.
While tariffs have worsened concerns over rising term premiums — the extra yield investors demand to hold long-term bonds — Venter maintained that U.S. Treasuries remain a "safe haven."
BlackRock, in a Monday report, echoed this view but highlighted that the U.S. bond market remains vulnerable to shifts in confidence. They noted that the recent surge in Treasury yields, even as U.S. stocks and the dollar fall, reflects investors demanding greater compensation for risk — a clear sign of a "fragile equilibrium."
Supply Chain Risks
BlackRock warned that the Trump administration's trade policies are triggering a broader global realignment.
“The final outcome of these transformations is almost impossible to predict, especially now with unpredictable tariff negotiations,” the firm wrote.
If trade deficits are quickly targeted for reduction — particularly through erratic tariff actions — it could erode foreign investor confidence, making it harder for the U.S. to fund its debt, BlackRock cautioned. This would push bond yields higher and raise U.S. debt servicing costs.
Even with the 90-day tariff reprieve granted to non-China countries after the April 2 announcement, the global supply chain remains vulnerable.
“Supply chains can evolve over time, but they cannot be rapidly restructured without causing significant disruption,” BlackRock wrote. Tariffs not only raise costs but can restrict access to critical inputs and potentially halt production — much like during the pandemic — resulting in stagflation risks.
Bond Performance
Since early April, short-term Treasuries have outperformed long-dated U.S. bonds.
The iShares 1-3 Year Treasury Bond ETF (SHY) posted a +0.3% return so far this month, whereas the broader U.S. bond market has struggled.
On Monday, the 2-year Treasury yield fell 4.3 basis points to 3.751%, according to Dow Jones Market Data.
Vanguard, from a duration management perspective, has favored mid-term maturities (around 5-7 years), Venter said.
Meanwhile, the Vanguard Intermediate-Term Treasury ETF (VGIT) has seen net inflows but recorded a slight 0.1% loss on a total return basis so far in April.
In contrast, the Vanguard Long-Term Treasury ETF (VGLT) suffered a steep 4.7% loss through Monday, significantly worse than the broader U.S. investment-grade bond market. For comparison, the iShares Core U.S. Aggregate Bond ETF (AGG) declined 1.3% over the same period.
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