U.S. Treasury yields continued to decline sharply on Friday, with the 10-year Treasury yield dipping below 4% for the first time, as China responded to President Donald Trump’s stringent “reciprocal tariff” policy. This led investors to rush into bonds seeking safety amid fears of a global recession.
The 10-year Treasury yield fell by 4 basis points to 4.015%, marking its lowest level since October. Earlier this year, yields had surged above 4.8% amidst optimism that Trump’s tax cuts would stimulate the U.S. economy.
The 2-year Treasury yield decreased by 5.5 basis points, now trading at 3.67%. It’s important to note that one basis point is equal to 0.01%, and generally, yields move inversely to prices.
On Friday, Federal Reserve Chair Jerome Powell expressed his expectation that Trump’s tariffs would elevate inflation and hinder growth, emphasizing that the central bank faces a “highly uncertain outlook” due to the newly announced tariffs.
He indicated that policymakers are prepared to maintain current rates until more information is available regarding the tariffs’ impact.
“We are well positioned to wait for clarity before considering any adjustments to our policy stance. It’s still too early to determine the appropriate direction for monetary policy,” Powell stated in prepared remarks for journalists in Arlington, Va.
On Friday morning, China announced a 34% tariff on all U.S. goods starting April 10, in response to Trump’s earlier blitz of tariffs, which would impose effective rates of up to 54% on certain Chinese products.
In the wake of these developments, investors have flocked to Treasurys for safety over recent days, which has resulted in lower yields since Trump’s tariff measures were enacted Wednesday evening. The initiative, which introduced a 10% baseline tariff across the board, affected over 180 countries and significantly pressured global markets.
“Clearly, the current rally is driven more by concerns about the trade war than by last month’s employment figures,” stated Ian Lyngen, managing director and head of U.S. rates strategy at BMO Capital Markets. “This situation could strengthen Trump’s negotiation position while limiting the Fed’s ability to adopt a dovish stance, especially as hard data remains robust.”
The 10-year rate has plummeted since concluding last week around 4.25%, as concerns over a trade war potentially raising prices and pushing the economy toward recession have mounted.
On late Thursday, JPMorgan increased its recession probability forecast for this year to 60% from 40%.
“If these policies continue, they would likely drive both the U.S. and possibly the global economy into recession this year,” wrote Bruce Kasman, JPMorgan’s chief global economist.
The federal jobs report released on Friday presented a mixed view of the labor market, showing nonfarm payrolls increased by 228,000 in March, while the unemployment rate rose to 4.2%. Economists surveyed by Dow Jones had anticipated an increase of 140,000 nonfarm payrolls and an unemployment rate of 4.1%. Meanwhile, job growth figures from earlier months were revised downward.
Following the jobs report, yields retreated slightly from their losses for the session.
“Indeed, with rising recession fears, a weaker-than-expected employment report could be detrimental to the U.S. economy,” remarked Julien Lafargue, chief market strategist at Barclays Private Bank. “Unfortunately, a more favorable reading might be quickly dismissed as ‘outdated’ due to the anticipated significant tariffs impacting the U.S. labor market.”
