01-04-2025
Treasuries Extend Rally as Traders Brace for Next Tariff Wave
(Bloomberg) — Treasury yields fell as markets worried about the potential hit to economic growth from President Donald Trump's next round of tariffs
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Benchmark 10-year yields (^TNX) were down about 4 basis points to roughly 4.17% on Tuesday, and touched the lowest level since March 11 after a Washington Post report that White House aides have drafted a proposal to impose tariffs of around 20% on at least most US imports. With Trump scheduled to unveil a plan for reciprocal tariffs on Wednesday afternoon in Washington, traders held onto bets that the Federal Reserve will deliver three quarter-point interest-rate reductions by year-end.
Market participants are positioning for another solid stretch of performance for Treasuries after signs of cooling US growth drove a first-quarter rally that left benchmark 10-year yields down about a half-percentage point from their January peak. Trend-following hedge funds turned short US equities and long Treasuries last month and the rotation has room to run, according to analysis by Barclays.
'Virtually all aspects of President Trump's April 2 global tariffs announcement remain unclear,' said Oliver Blackbourn, a portfolio manager at Janus Henderson. 'What is less uncertain is that tariffs are likely to be bad for economic growth, consumers, and markets.'
In a sign of how concern around the economic outlook is dominating the narrative, the bond market has gained to start the week even after New York Fed President John Williams warned on Monday that tariffs and other Trump administration policies could drive US inflation higher.
Some marketwatchers are skeptical that investors will get the clarity on US trade policy they've been waiting for. BlackRock International warns there will be more uncertainty after April 2 and that US yields are likely to edge up from here.
The rally 'does not make sense,' said Vasiliki Pachatouridi, head of EMEA iShares fixed-income strategy at BlackRock International. 'Inflation is still a sticking point, the hard data is not reflecting the picture the bond market is painting around recession and the expectation that the Fed is going to step in.'
At Legal & General Investment Management, meanwhile, Chris Jeffery says the market will benefit from clarity on the most important aspects of Trump's overall tariff policy, even if April 2 won't be the end of the line.
'The uncertainty has been pretty destructive' said the firm's head of macro strategy, who has been overweight duration. 'Everything is down on the risk asset side.'
—With assistance from Alice Gledhill.
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