The yield on the US 10-year Treasury note fell about 7 basis points to 4.23% on Monday, inching closer to the December lows observed last week, as concerns over the impact of former President Trump’s trade policies on the US economy intensified.
Treasury yields decline amid rising uncertainty
This sharp decline in yields reflected growing unease among investors, who are increasingly worried about the potential for an economic slowdown. In a Fox News interview, Trump declined to rule out the possibility of a recession, pointing to the tariff policy changes enacted during his administration and describing the current economic phase as a “period of transition.” His remarks seemed to amplify the sense of uncertainty in the markets, especially as investors continue to digest the implications of his trade policies on global trade dynamics and US economic growth.
Fed path is not clear
Meanwhile, Federal Reserve Chair Jerome Powell acknowledged rising economic uncertainty last week, suggesting that the central bank’s path forward might not be as clear as previously expected. Powell’s comments have added to concerns about the future direction of monetary policy, particularly as the Fed faces a delicate balancing act between tackling inflation and supporting economic growth. As investors turn their focus to the upcoming Consumer Price Index (CPI) and Producer Price Index (PPI) reports, all eyes will be on inflation data for clues about the trajectory of price pressures in the economy. This will come just ahead of next week’s Federal Open Market Committee (FOMC) meeting, where the Fed is expected to release updated economic projections that will provide further insight into their outlook for the economy and interest rates.
Recent economic data has raised some red flags
Recent economic data has raised some red flags, with the latest jobs report signaling a softening labor market. This, combined with ongoing concerns about the full effects of the tariff policies and trade disruptions, has caused growing skepticism about the pace of recovery in the US economy. Additionally, the ISM Manufacturing PMI report showed that businesses are already beginning to experience operational disruptions due to the new administration's tariff policy changes, signaling that the effects of these shifts are starting to materialize in real time. The combination of these factors is driving a more cautious approach among investors, as they brace for further signs of economic strain and consider how the Fed will respond in the face of these mounting challenges. With so many moving parts, Treasury yields may continue to reflect this heightened sense of uncertainty in the coming days.
