The benchmark 10-year Treasury yield fell 4 basis points to 4.25% after Trump announced the expansion of trade tariffs to the EU. The 2-year Treasury yields fell 2 basis points to 4.07%.

The 10-year Treasury yield fell to its lowest level since December as the market prepared for the implementation of Washington policies. The yields dropped to 4.25% after Trump announced he would expand the scope of the trade tariffs.

10-year Treasury yield drops to 4.25% amid economic uncertainties

The 2-year Treasury yield fell 2.6 basis points to 4.071% from 4.097% on Wednesday, marking the lowest close since October 2024. The 30-year Treasury yields also declined by 4.9 basis points from 4.555%, the lowest level since December 11. The 10-year Treasury yield dropped for a sixth consecutive day, losing 29.5 basis points on its eleven-week low.

> 10-Year Treasury Yield drops to 4.25%, the lowest level since early December 🥳🍾 pic.twitter.com/WxixlQ00Ih
> — Barchart (@Barchart) February 27, 2025

On Wednesday, President Donald Trump announced that trade tariffs against Canada and Mexico would be implemented next week. He clarified that these tariffs experienced a one-month delay and would soon extend to the European Union, imposing a 25% duty on EU goods. Markets responded as investors bid up fixed-income prices, reacting to data suggesting a cooling U.S. economy.

Investors expressed concerns about the trade war and risks to domestic growth. Michael Brown, a research strategist at Pepperstone, indicated that Trump may prioritize reducing government spending over economic growth. He speculated that the tariffs were a means to address perceived trade unfairness rather than negotiation tactics, despite the associated macro and market risks.

Housing data released on Wednesday indicated a 10.5% drop in new home sales, reaching 657,000 in January, below December’s 734,000. The Conference Board’s consumer confidence survey recorded a decline to 98.3 this month from 105.3 in January.

The Philadelphia Federal Reserve reported its index fell to -12.9 in February, the lowest since April 2023, with sales revenue dropping to -12.7, the lowest since May 2020.

Market analysts weigh in on February data, citing recession risks

The chief economist at FWDBonds remarked that the economy could be heading for a downturn due to Washington’s policies causing investor confidence to plummet. Mark Hackett, chief market strategist at Nationwide, noted that weakening economic data has driven investors from equities to bonds.

David Russel, global head of market strategy at Trade Station, expressed that concerns about tariffs and government spending cuts were prevalent among consumers and executives. He cautioned that Trump’s policies could exacerbate the situation as the economy was still recovering from post-pandemic inflation. Russel highlighted the increasing signals of a potential economic slowdown or recession, predicting further challenges for the bond market.

Traders are awaiting the January Personal Consumption Expenditures index report, anticipated to be released on Friday. The Federal Reserve uses the PCE to guide interest rate decisions, with the next policy committee meeting scheduled in three weeks.

Federal Reserve Chair Jerome Powell recently stated that the Fed would not rush to implement further rate cuts after an earlier positive consumer price index report led to a full percentage point decrease in rates.

Investment strategist Josh Jmaner from ClearBridge Investments commented that the report may signify the end of the rate cut cycle, predicting that the Fed would refrain from additional cuts. Powell reiterated the Fed’s cautious stance regarding further rate adjustments, stressing the importance of understanding policy changes and their economic impact.

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