In New York, there has been a surge in the Treasury market, worth $29 trillion, as investors sought safety in government bonds amidst market volatility caused by tariffs. However, recent significant selling pressure on Treasuries has led to a sharp increase in benchmark yields. This rapid selloff, resembling the "dash for cash" seen at the beginning of the COVID-19 pandemic, has raised concerns about the stability of the bond market.

On Monday, despite ongoing stock market stress, Treasury yields spiked by 17 basis points, marking one of the most substantial swings in 10-year yields seen in the past two decades. The selling continued into Tuesday, pushing 10-year yields back over 4%. It is believed that hedge funds and other investors may be selling off assets, such as U.S. government bonds, to meet margin calls stemming from losses in various asset classes.

The unraveling of the basis trade, an arbitrage strategy involving cash and futures Treasury positions, may also be contributing to the market turmoil. This trade, valued at around $800 billion, has drawn regulatory attention due to the potential risks associated with rapidly unwinding highly leveraged hedge fund positions. As Treasury prices decline in the selloff, the collateral value for borrowing decreases, triggering margin calls for some investors borrowing in the repo market. This chain reaction in the market could impact liquidity and intermediation, essential components of the global financial system.