U.S. Treasury yields mixed as investors assess the escalating China trade war

U.S. Treasury yields dropped as investors evaluate the outlook for economic growth and inflation amid U.S. President Donald Trump’s tariff policy and threats of even higher levies against China. At the time of publication, the yield on the 10-year Treasury was 4.156%, while the 2-year Treasury yield surged to 3.73%.

Investors have flooded into treasuries over the past few days after Trump’s tariff rollout was signed into effect on Wednesday evening, which pushed yields lower. Trump’s strategy also set a 10% baseline tariff across the board, hitting over 180 countries and hammering global markets.

Treasury Secretary Scott Bessent also highlighted that nearly 70 countries had already contacted the White House seeking tariff discussions.

U.S. Treasury yields mixed amid Trump’s global trade war

The 10-year Treasury yield is currently at 4.156%, and the 2-year Treasury yield ticked higher by one basis point at 3.73%. The U.S. Treasury yields moved lower as investors gauged U.S. President Donald Trump’s tariff policy and threats of increasing levies against Beijing.

The President initiated his aggressive global tariffs strategy over the weekend, with an initial unilateral 10% tariff taking effect Saturday. Trump also announced that his “reciprocal” tariffs will begin on April 9.

The U.S. president also mentioned that he would slap an additional 50% tariff on U.S. imports from China if Beijing did not lift the 34% tariffs imposed on U.S. products last Friday. China retaliated against Trump’s trade policies and vowed to “fight to the end.”

Saira Malik, head of Nuveen equities and fixed income argued that the risk is now skewed towards more rate cuts by year-end because the tariffs announced were higher than previously expected.

“Our probability-weighted guidance has increased from a total of four Fed cuts through 2025 and 2026 to 6.6 cuts, while our assessment of fair value for the 10-year U.S. Treasury yield has fallen from 4.5% to 4.0%.”

-Saira Malik, Head of Nuveen equities and fixed income.

The 10-year Treasury yield plummeted below 4% on Friday after China retaliated against Trump’s trade policy rollout. Investors flooded into bonds for safety on fears of a global recession. Yields and prices move in opposite directions, where one basis point equals 0.01%.

The 10-year Treasury yield dropped 4 basis points to 4.015%, which is its lowest level since October. The yield had reached 4.8% earlier this year in hopes that Trump would rev up the U.S. economy with tax cuts.

10-year Treasury yield falls on fears trade war will cause recession

Federal Reserve Chair Jerome Powell acknowledged on Friday that he expects Trump’s policies to raise inflation and curtail U.S. economic growth. He also noted that the central bank faced a “highly uncertain outlook” due to the new tariffs announced last week.

Powell highlighted that policymakers were ready to stand on rates until they received further details on the impact of the tariffs. He said, “We are well positioned to wait for clarity before considering any adjustments to our policy stance.” He also believes that it is too soon to determine what will be the appropriate path for monetary policy.

Managing director and head of U.S. rates strategy at BMO Capital Markets, Ian Lyngen argued that the rally was about pricing in the trade war rather than last month’s employment data. Lyngen also stated that “if anything, this will galvanize Trump’s negotiating stance and leave the Fed without much room to be dovish”

JPMorgan also raised the odds of a recession in 2025 to 60% from 40%. The firm’s chief global economist, Bruce Kasma, argued that if Trump’s policies were sustained, they would likely push the U.S. and global economy into a recession this year.

The federal jobs report released on April 4 also indicated a mixed picture of the labor market. Nonfarm payrolls surged by 228,000 last month, with the unemployment rate ticking up to 4.2%. Data also showed that yields shed off some of their losses for the session after the jobs report was released on Friday.

Chief market strategist at Barclays Private Bank Julien Lafargue believes that “with recession fears mounting, a weaker-than-expected print could be a nail in the coffin for the U.S. economy.” Lafargue also argued that a more encouraging reading could easily be dismissed as being “outdated” due to significant tariffs hitting the U.S. job market.

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