U.S. Treasury Yields Plunge Following Trump’s Tariff Announcement

In a dramatic turn of events, U.S. Treasury yields experienced a significant drop on Thursday, igniting worries of a potential recession across global markets. This reaction came swiftly after President Donald Trump unveiled a comprehensive tariff plan, which included a minimum 10% tariff on numerous imported goods, sending investors into a frenzy as they sought refuge in safer investments.

Tariff Impact on Global Markets

Trump’s announcement not only shook the American financial landscape but also reverberated worldwide. The proposed tariffs, which impose even steeper duties on products from various nations, led to a notable decline in stock prices and disarray in currency markets.

• 10% minimum tariff on most imports
• Higher duties on select countries
• Global stock markets faced sharp declines

Declining Treasury Yields

The yield on the benchmark 10-year U.S. Treasury note fell by 15.3 basis points, settling at 4.042% after dipping to 4.004%, marking its lowest level since October 16. This decline signifies the most substantial drop in yields since early August.

Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, commented, “The market now seems to anticipate possibly three rate cuts this year, reflecting growing concerns about economic activity.” She further noted that volatility is likely, as market sentiment could shift if the administration offers a more optimistic outlook.

Services Sector Weakness

The downturn in Treasury yields was compounded by a recent report from the Institute for Supply Management, revealing a drop in the non-manufacturing Purchasing Managers Index to 50.8—its lowest level since June 2024. This figure fell short of economists’ expectations, which estimated a reading of 53.

• PMI dropped to 50.8 (lowest since June 2024)
• Below economist projections of 53

Growing Recession Concerns

Concerns are mounting that Trump’s tariffs could lead to increased price pressures, potentially resulting in stagflation—a combination of stagnant economic growth and rising inflation. Goldman Sachs recently raised the likelihood of a U.S. recession to 35%, while J.P. Morgan’s chief economist estimates a 40% chance this year.

As the market adjusts to the new reality, traders are now anticipating 84 basis points of interest rate cuts by year-end. The Federal Reserve’s upcoming meetings will be closely watched, with expectations of a 25 basis point cut in June rising to nearly 80%.

Global Treasury Trends

The sudden movements in U.S. Treasuries mirrored trends in other markets, as investors globally sought lower-risk assets.

• German 10-year Bunds fell by 8.7 bps to 2.637%
• Japanese 10-year government bond yield dropped by 15.3 bps to 1.316%, reaching its lowest point since February 12

As the financial landscape continues to evolve, the impact of Trump’s tariffs will remain a critical focus for economists and investors alike. The unfolding situation underscores the interconnectedness of global markets and the ongoing uncertainty surrounding economic growth.

For more insights on the economic implications of tariffs, check out our analysis on the potential effects of trade policies on market stability.