Strong 10-Year Auction Combined with Tariff Shock Concerns Leads to a Decline in U.S. Treasury Yields Across the Board

According to the Zhitong Finance APP, on Tuesday, U.S. Treasury bonds rebounded, mainly driven by signs of economic damage caused by the global trade war. Meanwhile, strong demand for the new 10-year U.S. Treasury bond auction further strengthened this rebound. After the auction ended, the yield on the 10-year U.S. Treasury bond fell to a daily low of 4.342%, about one basis point lower than the trading level before the auction deadline, indicating demand exceeded expectations. The subsequent rise further lowered the yield to 4.30%, down about four basis points for the day.

In the past month, the Trump administration's tariff agenda has raised concerns about foreign demand for U.S. assets (including U.S. Treasury bonds). Zachary Griffiths, head of U.S. investment-grade and macro strategy at CreditSights, stated, "This looks like a fierce auction. This at least alleviates concerns about long-term Treasury buyers striking to some extent."

Short-term Treasury bond yields, which are more sensitive to changes in Federal Reserve interest rates, fell by about four basis points. Federal Reserve policymakers began their third meeting of the year on Tuesday, local time, and are expected to maintain the federal funds rate target range at 4.25%-4.5% on Wednesday. Traders expect the Federal Reserve to cut rates three times by 25 basis points this year, with the first cut anticipated in September. After the stronger-than-expected non-farm payroll data for April released last Friday, market expectations for rate cuts have cooled.

In recent weeks, Federal Reserve officials—including Chairman Powell, who will discuss this decision at a press conference—have largely emphasized the need to be patient and observe the impact of the trade policies implemented last month on the economy. Since the three rate cuts at the end of last year, President Trump has been increasing pressure on the Federal Reserve to resume rate cuts.

Bob Savage, head of macro strategy at the New York Bank Market, stated, "Behind this sentiment is a lingering concern that any policy shift by the Trump administration or the Federal Reserve's easing policy will not respond to bad news for the economy. Good news is not enough to offset concerns about growth and inflation. The market remains clouded, reflecting a weakening risk appetite globally."

U.S. stock markets fell on Tuesday, as disappointing signals from several companies reinforced negative assumptions about the impact of U.S. tariffs and retaliatory measures from trade partners. Earlier in the day, data showed that the U.S. trade deficit widened by 14% in March to a record $140.5 billion, exceeding economists' expectations, as businesses rushed to import products in advance of the Trump administration's plans to impose comprehensive tariffs. However, survey data and a decline in container shipments from China to the U.S. indicate that the surge in imports is about to end, and a narrowing is expected Strategists at BlackRock Investment Institute, led by Jean Boivin and Wei Li, wrote: "We expect supply-driven contraction in U.S. economic activity this year. This puts the Federal Reserve in a sharper trade-off between rescuing economic growth through interest rate cuts and controlling inflation." They also added that they expect tariffs to create production bottlenecks similar to those during the pandemic