The U.S. economy sounds the "stall warning" as U.S. Treasury yields collectively plunge

According to the Zhitong Finance APP, U.S. Treasury yields fell to a multi-month low on Monday, following mixed results from a manufacturing survey that raised investor concerns about slowing economic growth, along with a decline in oil prices.

U.S. President Trump stated that there is no room for an agreement before the tariff effective date with Canada and Mexico on Tuesday. Following Trump's comments, the stock market plummeted.

The yield on the two-year U.S. Treasury note decreased by about 5 basis points, and the yield on the five-year U.S. Treasury note also fell, stabilizing below 4%. As concerns about economic growth intensified, shorter-term Treasury yields dropped below 4% for the first time since October of last year.

The ISM manufacturing index for February fell from 50.9 (expansion) to 50.3 (still in expansion). The data showed unexpected contractions in new orders and employment indices, while the factory prices index (PPI) rose more than expected. With the decline in U.S. benchmark crude oil prices, U.S. Treasury yields fell further. Reports indicated that the U.S. is preparing to increase production.

Jack McIntyre, a portfolio manager at Brandywine Global Investment Management, stated, "The data is starting to show some weakness, and you see a shift in risk assets, which is favorable for U.S. Treasuries. After we entered the market, we saw European bond yields rise and thought it might be a bad day for U.S. Treasuries, but risk assets are wavering, and long-term Treasuries are being bought."

The U.S. Treasury market recorded its largest gain in six months in February, while the U.S. stock market experienced a decline. Weak consumer confidence and spending indicators triggered bets on the Federal Reserve cutting interest rates later this year.

These indicators led economists to downgrade their expectations for U.S. economic growth in the first quarter. The Atlanta Fed's GDPNow has significantly lowered its GDP growth forecast for the first quarter of 2025 by 510 basis points, from a growth of 2.33% to a contraction of 2.825%.

Amid President Trump's tariff agenda and the elimination of federal government jobs, economic concerns have intensified. The task of Federal Reserve policymakers is to promote full employment in the U.S. economy while maintaining price stability. However, inflation continues to exceed the central bank's long-term target of 2%.

St. Louis Fed President James Bullard stated on Monday that interest rates should remain at restrictive levels until progress is made toward the target.

The yield on the 10-year U.S. Treasury note fell by 5 basis points, dropping below the lowest level of 4.16% since December of last year, and remains close to that level. In terms of U.S. Treasury options, there is continued demand to hedge against further declines in yields. One case involved investors betting $27 million that the 10-year Treasury yield will fall to at least 4.1% by the end of April Affected by the larger increase in yields in most European bond markets, U.S. market yields opened higher, which is related to the prospect of increased bond supply to fund more defense spending.

Whether bond yields will continue to decline may depend on the labor market data for February to be released later this week.

James Athey, portfolio manager at Marlborough Investment Management, said, "We need more data to determine if this is just a soft patch or something worse. It's hard to say U.S. Treasuries are cheap unless you're confident the data will be weak."