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Treasury yields fell on Thursday to a nearly 6-month low a day after President Trump’s announcement of sweeping tariffs, which shook stock exchanges around the world.
The yield of the 10-year Treasury, a key factor in borrowing costs for all types of loans, fell Thursday morning from 4.20% to 4.00%. This is its lowest level since October mid-October. The bond rally—when bond prices go up, yields fall—came amid a global stock sell-off that put the S&P 500 down more than 4% in late-morning trading.
Trump announced on Wednesday a 10% flat-rate tariff on nearly every U.S. import, as well a more aggressive country-level tariff aimed at America’s biggest trading partners, such as China, the European Union and Japan. Trump claims that the tariffs are intended to increase federal revenue and revitalize American manufacturing.
Economists warn of unintended consequences. These include higher prices for consumers and business, lower investment at home, and softer consumer expenditure, all which would slow down the economy.
Trump campaigned for lower interest rates and has since returned to the White House repeatedly called on the Federal Reserve (Federal Reserve) to cut rates. Since Trump’s inauguration the 10-year Treasury has fallen, but not because he would have liked.
Trump’s tariffs, and the government’s cost-cutting initiatives, have increased the risk that the U.S. will enter a recession. This could force the Federal Reserve into action by lowering the federal funds rate. His policies have also roiled financial markets, sending investors to traditional safe-haven investments like Treasurys and Gold, which has notch a series record highs during this year’s turmoil.
Lower Treasury yields translate into lower rates for consumer products such as mortgages and auto loans. These rates have been at multi-decades highs since the Federal Reserve started raising rates in March 2020 to curb surging inflation.
Trump’s Tariffs could slow economic growth, and inflame inflation. This would raise concerns that the U.S. was on a collision-course with stagflation similar to the 1970s. The Fed may not be able to reduce rates to stimulate the economy.
