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U.S. Treasury yields have been on a rollercoaster as investors try to make sense of what’s coming next for the economy and inflation. All eyes are on President Trump’s tariff policies and his threats to ramp up levies on China. Currently, the 10-year Treasury yield sits at 4.156%, while the 2-year Treasury yield has jumped up to 3.73%.

It seems investors have been flocking to the safety of treasuries over the last few days. This move comes after President Trump’s tariff rollout officially began on Wednesday evening, which in turn pushed yields downwards. Trump’s approach includes a broad 10% tariff that impacts over 180 countries and is sending ripples through global markets.

Adding to the mix, Treasury Secretary Scott Bessent pointed out that nearly 70 countries have already reached out to the White House, wanting to discuss these new tariffs.

U.S. Treasury yields mixed amid Trump’s global trade war

Right now, the 10-year Treasury yield is holding at 4.156%, while the 2-year Treasury yield has edged up slightly by one basis point to 3.73%. Overall, U.S. Treasury yields have generally dipped as investors try to decipher President Trump’s tariff plans and his hints of even tougher tariffs against China.

The President kicked off his aggressive global tariff strategy over the weekend, with an initial 10% tariff taking effect on Saturday. Adding to the timeline, Trump also announced that his “reciprocal” tariffs are set to begin on April 9th.

President Trump also mentioned the possibility of hitting Chinese imports with an additional 50% tariff if they don’t remove their 34% tariffs on U.S. goods from last Friday. Unsurprisingly, China has pushed back strongly against Trump’s trade policies, declaring they will “fight to the end.”

Saira Malik, the head of equities and fixed income at Nuveen, suggests that the chances of more interest rate cuts by the end of the year have actually increased because these tariffs are higher than many anticipated.

“Our forecast, based on probabilities, now points to 6.6 Fed cuts through 2025 and 2026, up from our previous expectation of four. At the same time, our estimated fair value for the 10-year U.S. Treasury yield has decreased from 4.5% to 4.0%.”

-Saira Malik, Head of Nuveen equities and fixed income.

The 10-year Treasury yield took a dive below 4% on Friday after China responded to Trump’s trade policy announcements. Investors, nervous about a potential global recession, rushed into bonds as a safe haven. Remember, yields and prices move in opposite directions, and a basis point is just a tiny 0.01%.

Specifically, the 10-year Treasury yield fell by 4 basis points to 4.015%, marking its lowest point since October. Earlier in the year, yields had climbed to 4.8% as there was hope that Trump’s tax cuts would boost the U.S. economy.

10-year Treasury yield falls on fears trade war will cause recession

Federal Reserve Chair Jerome Powell weighed in on Friday, acknowledging that he anticipates Trump’s policies will likely increase inflation and slow down U.S. economic growth. He also mentioned that the central bank is facing a “highly uncertain outlook” because of the recently announced tariffs.

Powell emphasized that policymakers are prepared to hold steady on interest rates until they have a clearer picture of the tariffs’ impact. He stated, “We are well positioned to wait for clarity before considering any adjustments to our policy stance.” He also believes it’s still too early to say what the right course of action will be for monetary policy.

Ian Lyngen, Managing Director and Head of U.S. Rates Strategy at BMO Capital Markets, suggested that the recent market rally is more about pricing in the trade war’s effects than reacting to last month’s jobs data. Lyngen also added that “if anything, this will likely strengthen Trump’s negotiating position and leave the Fed with limited room to be more dovish.”

JPMorgan has also increased its prediction of a recession in 2025, raising the odds from 40% to 60%. Bruce Kasma, the firm’s chief global economist, argues that if Trump’s policies persist, they could very well push both the U.S. and the global economy into a recession this year.

The federal jobs report released on April 4th presented a mixed view of the labor market. Nonfarm payrolls jumped by 228,000 last month, but the unemployment rate also ticked up to 4.2%. Data also showed that yields recovered slightly from their losses after the jobs report was released on Friday.

Julien Lafargue, Chief Market Strategist at Barclays Private Bank, believes that “with recession fears growing, a weaker-than-expected jobs report could be the final blow for the U.S. economy.” Lafargue also pointed out that even a stronger jobs report might be easily dismissed as “outdated” given the significant impact of tariffs expected on the U.S. job market.

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Source: cryptopolitan.com