On Friday, the 10-year Treasury yield spiked. This increase was a testament to the market’s response to increasing trade tensions between the United States and China. At 4:45 a.m. ET, the yield climbed over 2 basis points to reach 4.416%. This surge comes after a notable sell-off at the beginning of the week. That downturn was mostly fueled by uncertainty about President Trump’s trade policies.
As they say in the bond market, yields go up when prices go down. This is because, as yield goes up, the value of Treasury bonds fall. Inflationary trade tinderbox Investors were already on edge from the trade war, where tariffs between the U.S. and China have reached heights never before experienced. As of Friday, total U.S. tariffs on Chinese imports have soared to 145%. In response, China increased its tariffs on American products from 84% to 125%.
The Treasury market is particularly prone to this volatility at present. This is a reflection of growing fears of an economic decoupling between the world’s two largest economies. Deutsche Bank analysts noted, “The main driver of the renewed market pressure was an increased focus on the US-China escalation.”
Besides the Treasurys’, the 2-year Treasury yield dropped over 3 bps, finishing at 3.809%. Market participants are closely monitoring upcoming economic data releases, including the producer price index report for March and the preliminary University of Michigan consumer sentiment data for April. These reports will be an invaluable resource for understanding the economic picture during this time of unprecedented trade turmoil.
On Wednesday, President Trump provided the relief the industry sought by announcing a sweeping 90-day tariff reprieve for almost all countries. He slashed tariffs to a blanket rate of 10%. This reprieve was most conspicuously without China, leading many to worry about the continuation of trade friction. In an environment characterized by rising uncertainty, investors are becoming gun shy. Consequently, market reactions are responding even more acutely to possible changes in this delicate balance of U.S.-China economic relations.