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US Treasury markets experienced a significant rally as President Trump’s selective approach to tariffs temporarily calmed inflation fears.
The decision to postpone China-specific tariffs, combined with falling crude prices following changes to offshore drilling policies, pushed 10-year yields down by 10 basis points to 4.53%. However, the announcement of 25% tariffs targeting Mexico and Canada created new market dynamics, sending their currencies tumbling over 1% and strengthening the dollar.
While some analysts, including UBS’s Mark Haefele, predict further yield declines and potential Fed rate cuts, others like ING and Nomura view this rally as temporary, citing structural pressures and ongoing deficit concerns. The market’s reaction highlights the increasing sensitivity to policy shifts, with overnight-indexed swaps now indicating a 52% probability of multiple rate cuts this year.
