Yellen: Tariff U-turn came as bond sell-off raised alarm

WASHINGTON — Former US Treasury Secretary Janet Yellen said on Thursday that the threat of financial instability prompted by falling prices for US Treasury debt in recent days likely influenced President Donald Trump's decision to reverse course and partially pause his tariff campaign.

Yellen, in her first broadcast interview since leaving office, told CNN International that US Treasury debt yields rose sharply amid the tariff financial turmoil, causing investors to question their safe-haven status. Bond yields move inversely to price.

"It caused highly leveraged hedge funds that hold US Treasuries to begin to sell their holdings, and that's something that could really begin to trigger financial instability if there is massive sales of US Treasuries," Yellen said.

"So my understanding is that this is something that was an influence on President Trump in getting him to pause the reciprocal tariffs, and it's certainly something that should be of concern."

Trump said on Thursday that there will be "a transition cost and transition problems", but dismissed global market turmoil. "In the end, it's going to be a beautiful thing."

The 90-day tariff pause brings little relief as recession risk lingers.

On Wall Street, the broad-based S&P 500 finished down 3.5 percent on Thursday after soaring 9.5 percent the day before. The Dow Jones shed 2.5 percent and the Nasdaq 4.3 percent.

In early trade in Asia on Friday, Japan's Nikkei tumbled over five percent. Seoul and Sydney also fell.

Oil and the dollar slid on fears of a global slowdown while gold hit a new record.

Global trade could shrink by 3-7 percent and global GDP by 0.7 percent, with developing countries the worst affected, the International Trade Centre said.

"It is huge," Pamela Coke-Hamilton, executive director of the International Trade Centre, told Reuters.

Agencies Via Xinhua