Tariff effects: Flock to safety drives bond yields down

The Trump administration’s aggressive tariff policy, followed by China’s 34% retaliation on all US goods, caused investors to flood into bonds for safety on fears of a global recession. As a result, the US 10-year Treasury yield dropped 4 basis points to 4.015% by April 4 – retracing its steps all the way back to lows reached during the last growth scare in September^.1 It appears inflation is not the market’s concern with respect to tariffs. It’s all about growth.

Decomposition of change in 10Y treasury yield

9/16/2024 to 4/4/2025

Source: Bloomberg

The US 10-year Treasury yield is a key indicator of investor confidence in the economy, with falling yields indicating concerns about a slowdown.

Nominal yield is the stated value yield of a bond, while real yield reflects the actual return after accounting for the impact of inflation.

As growth fears mount, the market is now pricing in over four Fed interest rate cuts in 2025 to support the economy.¹

¹Source: Bloomberg.

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