(Bloomberg) — US government bonds steadied Wednesday after a blistering rally over the past week spurred by bets that US President Donald Trump would take a more measured approach on imposing tariffs.
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The yield on 10-year government bonds was little-changed at 4.57%, down from as high as 4.81% last week. While the bulk of that move came after softer US inflation data, Trump’s decision not to impose levies from day one has helped consolidate it, and eased concerns over an immediate trade war that could reignite price pressures.
“You’ve seen the long-end of the bond market scream back lower, which makes complete sense,” said Mark Nash, an investment manager at Jupiter Asset Management, who started buying 30-year US Treasuries before the inauguration.
While the US president has widened his tariff threats to China and the European Union on top of Mexico and Canada, the only actual action he’s taken so far was to call for a review of trade practices by April 1. That potentially gives trading partners almost 10 weeks to avert new duties or address his demands.
Investors may decide “Trump’s bark is worse than his bite when it comes to tariffs,” said Kathleen Brooks, research director at XTB. “The EU may also be hopeful that they could see a ‘tariff light’ approach from the US.”
Trump’s latest threat of 10% taxes on Chinese exports is far lower than the 60% he mulled at one point last year. As a result, measures of expected inflation including breakeven rates and swaps have fallen, while a gauge of future volatility in rates markets dropped from a seven-week high.
That move has been boosted by the president’s attempt to lower energy prices by maximizing domestic oil and gas production to ease pressure on US households. The consumer price index remained above the Federal Reserve’s official target at 2.9% in December, though a measure stripping out food and energy eased.
“It’ll help contain domestic inflation in the US,” Nash said. “They are cautious on pushing up the cost of living because their voters will be very angry about that.”
Still, further price swings can be expected as Trump hones his tariff policies. Justin Onuekwusi, chief investment officer at St James’s Place, increased his position in US Treasuries last year and is waiting for more extreme moves to add further.
