By Vivien Lou Chen and Jamie Chisholm
Bond yields held near their lowest levels of the year on Tuesday amid anxiety over a growing trade war sparked by U.S.-imposed tariffs on Mexico, Canada and China.
What’s happening
— The yield on the 2-year Treasury BX:TMUBMUSD02Y fell 5.4 basis points to 3.927%, from 3.981% on Monday. Yields move in the opposite direction to prices.
— The yield on the 10-year Treasury BX:TMUBMUSD10Y slipped 1.7 basis points to 4.161%, from 4.178% on Monday.
— The yield on the 30-year Treasury BX:TMUBMUSD30Y rose 1 basis point to 4.474%, from 4.464% on Monday.
What’s driving markets
Treasury yields were steady, with the benchmark 10-year yield around 4.16%, close to its lowest since early December, as investors in the broader market fretted over the possibility that a tit-for-tat tariff battle between the U.S. and some of its major trading partners could slow economic growth.
On Tuesday, President Donald Trump’s 25% tariffs on imports from Mexico and Canada took effect, as did an additional 10% tariff on China’s goods on top of what is already being imposed on the Asian country.
China and Canada responded with retaliatory measures, while Mexico is expected to do the same, which is increasing concerns about a deepening trade war. The developments came as investors were already worried about recent data that indicated the U.S. economy is slowing.
“Up until today, many Trump administration policies could be rationalized under the ‘negotiating tactic’ mantra. This has been at the core of the limited market reaction to developments throughout the year,” said researcher George Saravelos of Deutsche Bank.
What is less debatable is that “if the tariffs on Canada, Mexico and China persist, it will be unavoidable for the U.S. to enforce a similar level of tariffs on Europe to maintain the relative competitiveness of the North American supply chain,” he wrote in a note. “In turn, the sum total of these tariffs would represent a major negative global growth shock, sufficient to push many economies in to recession.”
As of Tuesday, fed-funds futures traders were moving toward higher chances of 2025 rate cuts by the Federal Reserve. They now see a 33.9% likelihood of 50 basis points’ worth of easing by June, up from a 25% chance a day ago. They also see a 49.5% chance of one 25-basis-point rate cut by that month.
-Vivien Lou Chen -Jamie Chisholm
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03-04-25 0959ET
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