Treasury yields surge following Trump’s comments on US economic transition
Treasuries saw a rally after President Donald Trump’s comments on “a period of transition” for the US economy, fueling concerns that a slowdown may be imminent.
Benchmark 10-year yields slipped as much as 6 basis points after his remarks Sunday, which followed a volatile week for markets as investors fretted about the impact of tariffs and federal job cuts on growth. Those bonds now yield 4.25%, while the two-year security — which is most sensitive to the outlook for interest rates — pay 3.95%, News.Az reports, citing Bloomberg.
When asked whether he’s expecting a recession this year, Trump said, “I hate to predict things like that. There is a period of transition, because what we’re doing is very big.” And on Friday, Treasury Secretary Scott Bessent talked about “a detox period” as the US moves away from public spending.
That’s damping investors’ faith that the US will change course on its policy if markets tumble, an assumption that had previously helped calm jitters.
“The idea of a ‘Trump put’ is clearly wide of the mark, and the administration is doubling down on the ‘short-term pain for long-term gain strategy,’” said Michael Brown, senior research strategist at Pepperstone Ltd. “The degree of uncertainty remains incredibly elevated, most notably in terms of US trade policy, so it’s no surprise that participants continue to trade with a defensive bias.”
Last week, levies on Mexico and Canada were introduced, only to be scaled back for goods covered by the North American trade agreement until April 2. Meanwhile, the push to cut government jobs is continuing, albeit with more nuance.
Benchmark Treasury yields have fallen around 30 basis points over the past month. The moves have subverted a key Trump trade — a term used to describe a clutch of strategies purported to capitalize on the president’s policies — that saw investors bet on rates rising to reflect the inflationary impact of tariffs. Stocks have erased their post-election gains and the US dollar is down more than 4% from its peak.
That’s shaking the aura of economic and market exceptionalism that has dominated for more than a decade.
“They seem to be telling us that they are prepared for some pain to reorientate the economy,” Jim Reid, global head of macro research and thematic strategy at Deutsche Bank AG, wrote in a note. “Taken at face value these quotes suggest that their pain level is higher than most would have believed a few weeks ago.”
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