On Tuesday, U.S. Treasury yields had jumped. Bond markets understandably reacted to the growing uncertainty of tariff refunds and the overall turbulence of global economic conditions. The long bond – the 30-year bond – jumped more than six bps to 4.978%, the biggest spike all week. The 10-year Treasury yield exploded to the upside, rising over six bps, to 4.287%. Meanwhile, the 2-year Treasury yield rose nearly three bps to reach 3.652%.
Second, U.S. 30-year Treasury yields are making historical records in high right now. This increase parallels trends seen in European markets. As a result, yields for 30-year bonds spiked in Germany, France and the Netherlands, reaching their highest levels since 2011. At the same time, the U.K. 30-year gilt yield surged to its peak since 1998. 0.01%, as one basis point is equal to 0.01%—analyst note. These hiccups demonstrate unequivocally that the historic inverse correlation between yields and bond prices remains as strong as ever.
And that’s exactly what happened with a recent federal appeals court ruling that found most of Donald Trump’s global tariffs illegal. This decision was a partial driver behind the recent increase in yields. The court determined that only Congress possesses the authority to impose sweeping levies, stating, “The core Congressional power to impose taxes such as tariffs is vested exclusively in the legislative branch by the Constitution.” This ruling opens the door for actual refunds of existing tariffs. Consequently, we should expect higher Treasury issuance, adding even more upward pressure on yields.
Bond investors are comforted by the pledge of revenues from the tariffs. This is no crumb since they expect these tariffs to generate a whopping $172.1 billion by 2025. Over the course of the summer, market sentiment started to turn as worries about inflation caused by these tariffs started to subside. Ed Mills of Raymond James commented on the potential impact of the court’s decision, suggesting that “if this ruling is upheld, refunds of existing tariffs are on the table which could cause a surge in Treasury issuance and yields.”
Analysts have a laser focus on the next round of economic indicators. They are especially fixated on the non-farm payrolls report and the unemployment rate for August. We expect that these data points will be instrumental in understanding what’s happening in the labor market, and how that might affect monetary policy.
Ed Yardeni, president and chief investment strategist at Yardeni Research, expressed concern about broader economic implications, stating, “A new wave of sovereign risk is washing over European economies, with the UK and France most vulnerable as they navigate fiscal fragility, political instability, and cratering bond market confidence.”
We have U.S. yields going up. They are reflecting trends from foreign markets, illustrating how interconnected our global financial landscape is and how local events can influence markets around the world.