Treasuries largely unaffected by Trump's first week

by James Hirai

The US bond market is ending the first week of Donald Trump’s second presidency pretty much where it began.

The yield on US 10-year notes traded around 4.63% on Friday, little changed from a week ago. That’s unusual, putting the Bloomberg Treasury Index on track for its smallest move since September. 

The lack of a sharp move contrasts with fears ahead of Trump’s presidency for a bond selloff, given scrutiny over the sustainability of US debt as well as potential for trade wars that would add to inflation. However, markets have been reassured — for now — by the president ratcheting down threats on tariffs, saying Thursday he would prefer not to impose such taxes on China.

It’s not that there hasn’t been any action in the bond market. Treasury yields fell as low as 4.53% on his first day Monday and then climbed to 4.66% on Thursday. But Trump’s reign began in a week that lacked major economic data, while Federal Reserve policymakers observed a communications blackout ahead of their interest-rate decision next Wednesday.

“While we expect Treasuries to stay in range heading into the FOMC meeting next week, we do not rule out the possibility of a selloff,” Societe Generale SA’s head of US rates strategy Subadra Rajappa wrote in a client note. That could spur a move toward 5% for 10-year yields “as we get more information on tariffs, a key policy priority for the Trump administration.” 

Money markets and economists surveyed by Bloomberg are unanimous in expecting Fed Chair Jerome Powell and his colleagues to keep the key benchmark rates steady in a range of 4.25% to 4.5% next week. Looking further ahead, rate swaps now favor two quarter-point reductions by year-end, compared to just one such cut seen last week.