U.S. Treasury yields surge following expectations of Trump’s tariffs being more limited in scope

U.S. Treasury yields increased on Tuesday following reports that President Donald Trump’s tariffs might be narrower in scope. The report also indicated that some sector-specific duties may be imposed, which added optimism for investors.

Eastspring Investments expects the U.S. real economy data to continue to look decent through March. Eastspring Investments’ economists also believe that the data are largely pre-tariffs. The firm argued that hard data will only begin to reflect the post-tariff economy from April and May onwards.

U.S. Treasury yields edge higher amid Trump’s expected tariffs 

US government bond yields climbed on Monday as investors digested reports that President Donald Trump could soften the hit from a tranche of tariffs expected next week. Also boosting yields was an unexpectedly strong reading for the US services PMI for March. #ausecon #auspol

— CommSec (@CommSec) March 24, 2025

Reports that President Donald Trump’s tariffs might be more limited in scope caused U.S. Treasury yields to move higher on Tuesday.  The Wall Street Journal reported that planned tariffs from April 2 by the White House were set to be narrower in scope. The firms also reported that the planned tariffs will likely exclude some industry-specific duties, which provided optimism for investors.

Data revealed that the benchmark 10-year Treasury note yield moved nearly two basis points higher at 4.346%. The data also showed the 2-year Treasury moved over one basis point higher at 4.051%.

The Purchasing Managers Index (PMI) data released yesterday indicated a reading of 54.3, which was higher than 51 in February. Monday’s PMI data also exceeded the 51.5 Dow Jones consensus estimate. A reading above 50 signals economic expansion, while a reading below 50 points indicates economic contraction.

The S&P CoreLogic Case-Shiller home price data for January, which tracks changes in residential home prices, is expected later today. Investors are also expecting the weekly initial jobless claims to be out on Thursday. The major data release this week will be the personal consumption expenditure index on Friday, which is the Fed’s favored measure of inflation.

Trump highlighted that his reciprocal tariff plans will have “flexibility,” but he seemed to oppose the idea of making exceptions for the forthcoming duties. He told reporters at the Oval Office that people were coming to him and talking about tariffs. He also added that “a lot of people are asking if they could have exceptions.” The President argued that “once you do that for one, you have to do that for all.”

The U.S. President mentioned that he did not change his mind when he issued top automakers a one-month exemption on a prior round of import duties early this month. He also sounded optimistic about the April 2 start date for his reciprocal tariffs after he referred to it as America’s “liberation day.”

The Head of State acknowledged that the plan will effectively assign tariff rates to all countries that have their own tariffs on U.S. goods. Trump also said that countries with other non-tariff trade policies that his administration opposes, such as value-added taxes, could be subject to new duties.

The U.S. President highlighted on Sunday that he plans to speak with Chinese President Xi Jinping regarding the tariffs. China retaliated and issued tariffs on U.S. agricultural products in response to Trump’s broad tariffs on Chinese imports.

The Fed lowers its outlook for economic growth

The Fed lowered its gross domestic product (GDP) growth forecast from 2.1% in December to 1.7%. The Fed also revealed that it left its borrowing rate targeted between 4.25% and 4.5%, where it has been since December.

Fed chair Jerome Powell said that the Fed will move in quarter percentage point increments despite Trump’s tariffs, tax breaks and deregulations. 

“If the economy remains strong, and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can ease policy accordingly.”

–Jerome Powell, Chair of the U.S. Federal Reserve.

The FOMC also noted that the uncertainty around the economic outlook had surged and that the Fed was “attentive to the risks to both sides of its dual mandate.” Powell also believes that inflation has started to move up in response to tariffs. He argued that there may be a delay in further progress over the course of this year.

The Fed’s dot plot showed that 19 FOMC members, both voters and nonvoters, expect the benchmark fed funds rate at 3.9% by the end of 2025, which is equivalent to a target range of 3.75% to 4%.

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