US Treasuries rally as President Trump ‘transition’ talks spell recession

Treasury bonds have rallied following President Donald Trump’s remarks on Sunday about the US’s “period of transition,” which birthed concerns of an impending economic slowdown. Yields dropped lower as uncertainty over echoes of a Trumpian trade war and government spending cuts continues to rattle markets.

According to CNBC’s market updates, the yield on the benchmark 10-year Treasury note fell by 7 basis points to 4.23%, approaching its lowest level since December. The 2-year Treasury yield dropped by nearly the same amount, settling at 3.937%. 

The decline in yields could mean that investors are worried about economic headwinds, especially because of the Trump administration’s trade tariffs, which economists insist are increasing inflationary pressures on the US.

Trump, Secretary Bessent say the US needs an ‘economic detox’

Speaking to FOX Business last week, President Trump did not make a definitive call on whether the US was heading toward a recession but admitted the country was going to struggle for “a little while.” 

“I hate to predict things like that. There is a period of transition because what we’re doing is very big,” he said.

The comments supplemented US Treasury Secretary Scott Bessent’s sentiments, who had earlier on said the economy was easing away from a period of excessive government spending. Bessent propounded that moving away from government-driven spending to a more private-sector-led economy would involve some short-term pain.

“Could we be seeing that this economy that we inherited is starting to roll a bit? Sure,” Bessent said in an interview with CNBC’s Squawk Box. “And look, there’s going to be a natural adjustment as we move away from public spending to private spending.” 

The Treasury Secretary concluded that the US economy had become “hooked” on government expenditures, and any effort to cut off the spree would render a market correction inevitable.

Trump now wants us to believe that to get from Biden's completely fine economy to Trump's explosive economic growth, we have to go through a "transition" that some might call…a recession. This guy is nuts. pic.twitter.com/teEPVBoS3e

— David Pakman (@dpakman) March 9, 2025

The market reaction over the past month has upended what had been referred to as the “Trump trade,” a supposed expectation that Trump’s policies would drive inflation and lead to higher interest rates. 

Benchmark Treasury yields have fallen by roughly 30 basis points in the past month, while stock markets have erased post-November election gains. The US dollar has also dropped more than 4% from recent highs reached in January, adding to investor’s concerns over economic stability.

“The idea of a ‘Trump put’ is clearly wide of the mark, and the administration is doubling down on the ‘short-term pain for long-term gain’ strategy,” noted Michael Brown, a senior research strategist at Pepperstone Ltd. “ It’s no surprise that participants continue to trade with a defensive bias.”

Markets brace for Federal Reserve inflation data

All eyes of the Federal Reserve, equities and crypto markets will be on two reports; the Consumer Price Index (CPI) report, scheduled for release on Wednesday at 11:30 AM UTC, and the Producer Price Index (PPI) on Thursday.

“Inflation data will dominate the economic calendar this week,” chief economist at Comerica Bank Bill Adams told CNBC. “The total and core Consumer Price Indexes likely rose at a more moderate pace in February after sharp increases in the prior month.”

Investors will also be closely waiting for next week’s Federal Open Market Committee (FOMC) meeting, where policymakers will release updated economic projections. 

February’s labor market data showed signs of a strong job outlook, but economists predict that in the coming months, businesses are beginning to feel the effects of the administration’s push to reduce federal jobs, led by Elon Musk-founded Department of Government Efficiency (DOGE).

Last week, the Trump administration imposed new tariffs on Mexico and Canada, only to later scale them back for goods covered under the North American trade agreement until April 2. Meanwhile,

Some economists are not convinced recession will happen

Trump’s return to the White House caused global market volatility that was felt for months, but his influence on markets is now shaky, and economists are certain that his head-strong approach to imposing tariffs will lead to a recession. 

Last week, the Federal Reserve Bank of Atlanta’s GDPNow tracker reported that the US gross domestic product could shrink by 2.4% in the first quarter, drawing the economy nearer to a technical recession, or rather, two consecutive quarters of negative growth.

Still, some economists, like Berenberg Bank’s Holger Schmieding, believe that a full-blown recession is not inevitable.

“I don’t think we will talk about a US recession. The US economy is resilient, I would say, largely despite Donald Trump,” said Schmieding in an interview with CNBC’s Squawk Box Europe.

The stock market analyst, however, warned that Trump’s economic policies will put a weight on America’s long-term economic growth. 

“What is becoming ever clearer in the long run is that Trump is hurting US trend growth, that is, growth in the years beyond 2026. He stands for higher prices for US consumers, which means, in my view, the Fed has no reason to cut rates with Trump as president and Trump sowing chaos and confusion,” he added.

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