Often overlooked in global headlines, Taiwan is attracting financial market attention as the biggest macro risk of the day, prompting many traders and investors to shift away from worries about the recession, inflation, central banks and Russia’s war in Ukraine. The focus is US President Nancy Pelosi’s visit to Taiwan, sparking fears of retaliation from the island’s giant neighbor China. Earlier on Tuesday, global stocks sold off on geopolitical tension, as investors sought the safety of US Treasuries and traders took a second look at their positions in all assets. After Pelosi’s plane landed safely in Taipei, Taiwan’s capital, market sentiment appeared to improve in the stock market, with the S&P 500 and Nasdaq Composite rising. “Macro investors are counting on China’s opening to stabilize positions,” said Jim Vogel, Memphis-based executive vice president and chief interest rate strategist at FHN Financial. They have balanced equity allocations and are counting on commodity price bottoms as well as downside price action in fixed income. Now, however, relying on China “as an international driver of growth is unreliable,” Vogel wrote in a note on Tuesday. Moreover, China’s intentions toward Taiwan “have been obvious and threatening for years,” and the narrative between the two “will not go away for years.” Pelosi is the highest-ranking American politician to visit the island of Taiwan in 25 years since then-Speaker Newt Gingrich arrived in 1997. Asian markets were jittery on Tuesday, which were “shaky” Tuesday morning amid fears that China’s military jets “could buzz Pelosi’s plane,” said Greg Valliet, chief U.S. policy strategist for AGF Investments. Valliere described the potential for error on both sides as “quite serious.” Chinese President Xi Jinping is seen by intelligence experts as needing a “diversion” from his country’s struggling economy and trying to recover from “extremely tough” COVID restrictions, according to Valliere. At the same time, China’s president “cannot afford to look weak” as he seeks a third term in office later this year. Meanwhile, Beijing sees Taiwan as a threat, given the island’s healthy economy and personal freedoms. Taiwan is generally regarded as the most democratic place in East Asia. Pelosi’s visit will have a “big” impact — resulting in a further deterioration of relations between the US and China, “with little hope of trade reconciliation,” the AGF general said. Frantic traders were tracking Pelosi’s plane’s every move on popular flight trackers, and it was the flight-to-safety sentiment that drove bond yields lower earlier Tuesday, according to Ben Emons, managing director of global macro strategy at Medley Global Advisors in New. York. He described bond market movements as a result of “the Nancy Pelosi conflict.” According to senior analyst Neil Thomas and others at Eurasia Group, a New York-based consulting firm, “Pelosi’s visit will significantly increase US-China tensions, but is unlikely to provoke a Chinese response that risks confrontation.” . The Eurasia Group sees a “25% chance of a major security crisis, such as a protracted US-China military standoff that threatens further escalation,” they wrote in a note. But Beijing could order additional military air and naval exercises, may sanction the U.S. delegation and freeze bilateral trade, and is open to considering boycotts and sanctions on Taiwanese and U.S. companies, the consultancy said. . On Tuesday, the major U.S. stock indexes DJIA, -0.93% SPX, -0.31% COMP, +0.21% were mixed in late morning trading. Meanwhile, investors sold government bonds, sending yields higher across the board in a reversal of earlier Tuesday’s bond rally.