The bond market is reacting to President Donald Trump’s tariffs on Canada, Mexico and China. Traders are pricing in higher inflation in the near term but also the likelihood the Federal Reserve will hold rates higher for longer
Short-term yields were rising, with the 2-year Treasury note yield rising five basis points to 4.27%. However, the 30-year yield was falling 4.5 basis points to 4.745%. That suggests tariffs are being seen as inflationary in the short-term due to higher consumer prices but deflationary from a long-term growth perspective.
“Given the heightened uncertainty, the Fed is likely to hold rates steady, opting to assess market conditions before considering any adjustments,” wrote Richard Flax, chief investment officer at Moneyfarm.
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