Investors are eager for tariff deals. They might get more tumult in bonds and stocks instead.

Tariff-driven turmoil in the Treasury market, and thus the broader financial market, may not let up anytime soon.

In a nutshell, the world’s deepest, most liquid bond market remains vulnerable to both aggressive selloffs and rallies for a number of reasons — starting with uncertainty over what the Trump administration’s final tariffs on each country will look like.

There are also the growing risks of a U.S. recession, higher inflation and the diminished attractiveness of American assets in the eyes of many investors. The latter has the potential to produce unruly selloffs in Treasurys, which could trigger similar moves in global bond markets, alarm stock investors and drive up the cost of buying a home for many Americans.

Meanwhile, tariff-fueled inflation could hamstring the Federal Reserve’s ability to respond to an economic downturn, and disappoint traders counting on multiple interest-rate cuts this year.

Trade talks — like those with Japan, which U.S. Treasury Secretary Scott Bessent has described as “progressing in a highly satisfactory direction,” and possibly China, which is reportedly in negotiations with administration officials — are likely to be in focus given a lack of top-tier economic data releases in the week ahead.

At stake for investors is whether the wild rides seen in bonds and stocks during the first half of April are simply the starting point for more volatility and trading losses to come.

Read: Not even the co-creator of this economic-uncertainty index can tell when the worst will be over

For now, investors and traders appear to have a relatively high bar for any progress on trade negotiations between the U.S. and its major trading partners. This was evidenced by Thursday’s rather lackluster response in the markets to reports of progress in talks between the U.S. and Japan; the Dow Jones Industrial Average DJIA and Nasdaq Composite COMP sank for a third straight day, while Treasurys sold off in a way that indicated worries about inflation remain firmly in place.

“Investors are still very uncertain about what will happen to trade going forward and what the endgame is for U.S. trade policy,” said Gennadiy Goldberg, head of U.S. rates strategy for TD Securities in New York. “If we can get some clarity on that, it would be very well received. But persistent uncertainty over trade policy will continue to weigh on sentiment.”

Even if some trade deals get struck relatively quickly, much will depend on whether such agreements include a full removal of trade restrictions or include tariffs “which settle at a higher level than before, but not as high as the April 2 ‘liberation day’ announcements suggested,” Goldberg added.

As a result of numerous actions by the Trump administration, the average U.S. tariff on all goods imported from the rest of the world jumped from 3% to 10.3% between Jan. 20, the day of the president’s inauguration, and April 11, just two days after Trump implemented a 90-day pause on big “reciprocal” tariffs for virtually all countries except China, according to the Peterson Institute for International Economics.

Any estimates on average tariff levels would be a guess, at best. For example, U.K.-based Oxford Economics estimated that after the president’s April 9 decision to pause most reciprocal tariffs, the weighted average tariff rate on U.S. imports was 33%.

Investors hope to have more clarity on actual tariff levels after the 90-day pause ends in July.

Read:

Recent extreme tumult in markets has Wall Street still assessing the damage, as well as the toll of back-and-forth tariff announcements.

Inflation traders currently envision a scenario where tariffs are likely to create a shock to future price increases that lasts for at least 12 months. This is reflected in derivatives-like instruments known as fixings, which point to 3%-plus readings on the annual headline rate of the consumer-price index from July 2025 through March 2026.

Based on personal calculations, Gang Hu of New York hedge fund WinShore Capital Partners estimates the narrower annual core CPI rate, which excludes food and energy prices, could rise to as high as 3.7% in the year ahead, from 2.8% in March.

“The big question is whether these tariffs are inflationary or deflationary in the medium and long term,” according to Hu. For now, market participants are expecting inflation to drop to 2.3% once the U.S. gets past the period of tariff-induced price gains, he added.

According to strategists like TD’s Goldberg, however, there’s a risk that inflation could become more entrenched and less of a one-time shock.

While touted as one of the most important tools that investors have to guard against inflation, Treasury inflation-protected securities, or TIPS, have been suffering.

Thursday’s $25 billion auction of 5-year TIPS was met with weak demand by indirect bidders, a possible sign of broader concerns about the U.S. economy or the effectiveness of the Treasury’s borrowing strategies.

“TIPS is a product that has been severely damaged, for lack of a better word,” Hu said via phone. “Many fixed-income funds have unwound their positions, and I suspect TIPS are pricing in a certain amount of stress in the U.S. inflation market.”

TIPS have been mostly unloved by investors for years because of the unexpected losses they incurred when real rates kept climbing before and after the Federal Reserve began hiking interest rates in 2022. That said, some traders still assumed the securities would regain favor by now because of the likelihood of a tariff-driven inflation shock.

It’s possible the bond market may settle into a period in which aggressive selloffs and rallies of U.S. government debt can coincide, albeit on different days.

Aggressive selloffs push up the yields on underlying Treasurys, and can present a good buying opportunity for investors who haven’t had a chance to get in. This can lead to rallies.

Meanwhile, investors already holding U.S. government debt tend to get burned the most, particularly during periods of higher inflation, because price increases erode the purchasing power of a bond’s future cash flows.

In early April, investors flocked to government bond markets around the world on fears of a tariff-driven recession — resulting in lower yields in the U.S., U.K., Germany, Japan and Australia.

But by the end of the second week of the month, Treasurys had aggressively sold off on the diminished safe-haven appeal of U.S. government debt, leading to a historic weekly surge in long-term yields.

Yet there’s no evidence that Treasurys have entirely lost their safe-haven appeal. For one thing, buyers showed up in force at the Treasury’s $39 billion auction of 10-year notes BX:TMUBMUSD10Y on April 9, which was followed the next day by a strong $22 billion auction of 30-year bonds BX:TMUBMUSD30Y. And on a weekly basis, U.S. government debt rallied overall during the four trading sessions that preceded the Good Friday holiday, while all three major U.S. stock indexes declined.

But tough questions are being asked about whether Treasurys are still one of the safest assets in the world, according to TD’s Goldberg.

“Unfortunately, the question is more up in the air than it has been in a long time, because foreign investors aren’t clear if the instability we are seeing in trade and fiscal policy makes Treasurys a good investment in the long run,” he said. “The fact that questions are continuing to be asked is not a positive development for U.S. markets generally.”

The week ahead brings the first batch of monthly data for April that will likely reflect some impact from Trump’s tough tariff talk. On Wednesday, S&P Global’s flash U.S. services and manufacturing purchasing managers’ indexes for the month are scheduled to be released. Then on Friday, the final reading of the University of Michigan’s consumer-sentiment index for April arrives.

Brian Mulberry, client portfolio manager at Chicago-based Zacks Investment Management, said he isn’t sure what to make of the soft demand witnessed at Thursday’s TIPS auction.

“It’s hard to interpret too much since the range of outcomes in front of us is wide,” Mulberry told MarketWatch. “But I’m not seeing anything in the structure of Treasury issuances that makes me think we are losing our safe-haven status. Everything is working in unison and there is literally a day-to-day measure of risk that is impacting demand.”