The US 10-year Treasury yield rose back above 4% on Monday, rebounding slightly from a six-month low, even as Trump’s sweeping tariffs fueled fears of an economic slowdown. The new tariff policy, which affects over 180 countries, includes a baseline 10% tariff rate, with even steeper levies for key trading partners.
US 10-year treasury yield bounces back above 4%
Notably, China now faces a total of 54% in tariffs on its goods exported to the U.S. This aggressive move has significantly heightened concerns of a global trade war, with China retaliating by imposing 34% tariffs on U.S. goods, while the European Union has warned of countermeasures if the trade talks fail to yield an agreement.
Trump, however, appeared unfazed by the escalating market turmoil and growing fears of a recession, dismissing concerns by stating on Sunday, “sometimes you have to take medicine to fix something.” Despite these remarks, the impact of the tariffs is undeniable, with financial markets bracing for a slowdown in economic activity. The trade conflict has created significant uncertainty, particularly for global supply chains and consumer prices, raising the risk of inflationary pressures and stunted growth.
Traders bet more on future Fed easing
In response to the growing economic risks, traders have significantly increased their bets on future Fed easing, expecting that the central bank will take action to mitigate the economic fallout from the trade war. Futures markets now price in five rate cuts for 2025, signaling that investors expect the Federal Reserve to move quickly to counter any adverse effects on the U.S. economy. The CME FedWatch tool also shows a roughly 50% chance of a quarter-point cut in May, as markets anticipate a shift in monetary policy in the face of a potential slowdown.
The rise in the 10-year Treasury yield, despite these fears, reflects some optimism in the bond market about the Fed’s capacity to support economic stability. However, the yield is still volatile, reflecting the ongoing uncertainties about the long-term impact of the trade war and the central bank's response. As the situation develops, markets will be closely watching any signs of further trade escalation or Fed intervention, which will be crucial in determining the direction of both bond yields and broader economic sentiment.
