The yield on the US 10-year Treasury note dropped below 4.2% on Tuesday, reaching a one-week low as mounting US recession fears fueled demand for safe-haven bonds.
US 10-year yield slides on economic concerns
Investor concerns intensified after President Donald Trump, in a Sunday interview, declined to rule out a potential downturn, describing the current economic climate as a “period of transition.” Markets grew increasingly wary that Trump’s tariffs and protectionist trade policies could heighten the risks of a prolonged trade war, potentially impeding economic growth and adding pressure to already fragile global supply chains.
Weak economic data raised red flags
Additionally, a string of weak economic data has raised red flags about the health of the US economy. The latest jobs report pointed to a cooling labor market, with payroll growth slowing and unemployment claims ticking higher, reinforcing fears of a broader economic slowdown. Meanwhile, the ISM Manufacturing PMI suggested that businesses were already feeling the strain of new trade policies, reporting early operational disruptions and rising input costs. The services sector, which has been a pillar of economic resilience, also showed signs of softening, as indicated by a dip in the ISM Services PMI.
At the same time, uncertainty looms over the impact of sweeping federal budget cuts, which are expected to take a toll on government spending and public sector employment in the coming months. The combination of tighter fiscal policy and restrictive trade measures has left investors on edge, driving a flight to safety that pushed bond yields lower.
Eyes on upcoming indicators
Looking ahead, market participants are now focused on upcoming inflation data, with CPI and PPI reports due later this week, which could provide further insights into the trajectory of price trends and influence expectations for Federal Reserve policy. A softer-than-expected inflation reading could fuel speculation of rate cuts later this year, further driving demand for Treasuries. However, if inflation remains sticky, the Fed may be forced to maintain a cautious stance, complicating the economic outlook.
