Despite a surprisingly soft inflation report and President Donald Trump‘s temporary trade truce, U.S. Treasury yields rose Thursday, suggesting that bond investors remain skeptical of a near-term Fed pivot and are bracing for prolonged policy uncertainty.
The yield on the 30-year Treasury note rose 8 basis points to 4.81%, retracing roughly half of the sharp decline sparked by Trump’s unexpected 90-day tariff pause the day before. Meanwhile, the 10-year yield ticked up 3 basis points to 4.35%, signaling persistent investor wariness despite improving macroeconomic signals.
The iShares 20+ Year Treasury Bond ETF TLT fell 1.5% at the open.
While falling inflation typically softens yields by boosting rate-cut hopes, bond investors are clearly holding their breath, waiting for a more decisive signal — the so-called “Fed Put” — from the central bank.
Inflation Cools Sharply, But the Fed Stays Quiet
The Consumer Price Index (CPI) dropped more than expected in March 2025, reviving hopes that the Federal Reserve might pivot to rate cuts sooner than anticipated.
Annual inflation fell to 2.4%, the lowest since September 2024, down from 2.8% in February and well below the 2.6% consensus forecast.
Even more striking, monthly inflation contracted by 0.1%, marking the first negative reading since May 2020. Core inflation, which strips out food and energy, eased to 2.8% year-over-year, its lowest level since March 2021.
Yet, Fed Chair Jerome Powell has made it clear he’s in no hurry. In his latest remarks, Powell reiterated that the economy remains in a “good place” and emphasized patience in adjusting monetary policy.
Bond Market Vigilantes Are Back
This cautious stance has left room for the return of what some economists call the “bond vigilantes” — investors who push yields higher to impose market discipline when they sense monetary or fiscal authorities are falling behind the curve.
“Bond investors are the economy’s bond vigilantes… if the fiscal and monetary authorities won’t regulate the economy, the bond investors will,” said Ed Yardeni, recalling his now-famous quote first uttered in 1983.
“The Trump administration may be playing with liquid nitro,” Yardeni added, warning of unpredictable consequences if markets lose faith.
According to Yardeni, the Fed Put — a market belief that the Fed will step in during turmoil — might reappear swiftly if financial stress deepens.
Echoing this view, economist Nouriel Roubini framed the current climate as a tense standoff.
“In this three-way game of chicken between Trump, Powell, and Xi Jinping, Powell did not blink,” Roubini said.
“Instead, market discipline forced Trump to backtrack — not equities alone, but soaring bond yields, widening credit spreads, and fears of a disorderly dollar collapse led to the 90-day tariff pause.”
Roubini believes that while the pause eases tensions, Trump feels emboldened, and Xi can’t afford to lose face. A true de-escalation may only come through backchannel diplomacy, not economic signals alone.
Even Trump admitted on Wednesday: “I was watching the bond market. The bond market is very tricky… But if you look at it now it’s beautiful.”
On Thursday, he announced that a “Big, Beautiful, Bill” on tax cuts is on the way.
But bond markets aren’t buying it — not yet.
Despite the White House’s softer rhetoric and a clear disinflationary trend, yields are under upward pressure, hinting that large foreign holders may be offloading long-dated Treasuries to repatriate funds amid global uncertainties.
Adding to the complexity, the U.S. dollar index dropped 1.2% on Thursday, on pace for its lowest close since early October 2024. Since Trump’s inauguration in January, the greenback has lost nearly 8%, reflecting investor unease over both trade and fiscal policy.
Fed Speakers On Deck
Later today, markets will closely monitor remarks from a slate of Federal Reserve officials, including:
- Lorie Logan, Dallas Fed President, at a North American trade and immigration conference.
- Jeffrey Schmid, Kansas City Fed President, on monetary policy and the economy.
- Michelle Bowman, Fed Governor, testifying before the Senate Banking Committee for her nomination as vice chair for supervision.
- Austan Goolsbee, Chicago Fed President, in a Q&A with the Economic Club of New York.
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