The deadline for the implementation of high tariffs in the United States is approaching, and the demand for safe-haven assets is suppressing U.S. Treasury yields
As the deadline for the implementation of high tariffs in the United States approaches, the demand for safe-haven assets has increased, leading to a rise in U.S. Treasury prices. The yield on the 10-year Treasury note fell by 4 basis points to 4.38%, the lowest since July. The lack of breakthroughs in trade negotiations has increased the risk of tariffs taking effect. Investors are shifting from the stock market to safer assets like Treasury bonds, with the yield on the 30-year Treasury note also decreasing by 4 basis points to 4.95%. Short-term Treasury yields are supported by concerns over the potential dismissal of Federal Reserve Chairman Jerome Powell. The market expects the Federal Reserve to lower rates by 46 basis points
According to Zhitong Finance APP, as the deadline for U.S. tariff policies approaches, the demand for safe-haven assets has increased, leading to a rise in U.S. Treasury prices, consistent with the upward trend in European bond prices. The yield on the U.S. 10-year Treasury bond fell by 4 basis points to 4.38%, the lowest level since July 11. This week, officials from the U.S. and the EU will continue trade negotiations, which have yet to yield breakthroughs, increasing the risk that the 30% tariff may take effect at the beginning of next month.
Kathleen Brooks, head of research at XTB Limited, stated: "Concerns about tariff risks and the August 1 deadline are intensifying the market's risk-averse sentiment. This has led to a slight reallocation of funds from the stock market to safer assets like government bonds."
Longer-term bonds also saw significant gains, with the yield on the U.S. 30-year Treasury bond falling by 4 basis points to 4.95%. Evelyne Gomez-Liechti, a multi-asset strategist at Mizuho International, noted that some investors may be taking profits from steepening curve trades.
The yield on the U.S. 2-year Treasury bond decreased by 2 basis points to 3.84%. The support for short-term Treasury yields is due to traders seeking to hedge against the possibility of Trump potentially firing Federal Reserve Chairman Powell, a strategy recently referred to as the "Powell hedge."
The logic behind this operation is that if the new Federal Reserve Chairman is more inclined to align with Trump's interest rate cut demands, short-term bond yields may decline due to expectations of policy easing; meanwhile, concerns about the erosion of central bank independence could push up long-term inflation expectations, thereby raising long-term bond yields. Powell is scheduled to deliver opening remarks at a Federal Reserve meeting on Tuesday. It is expected that he will not comment on the interest rate outlook before next week's policy decision.
The swap market indicates that a rate cut is almost impossible next week. For the remainder of this year, traders expect the Federal Reserve to cut rates by a total of 46 basis points, a change that is not significantly different from last Friday's expectations
